AUD/USD has been quite volatile today as the market contends with a variety of cross currents.

On the plus side, AUD is getting a lift from several factors:

  • Generally improved risk appetites
  • Growing global demand for grains as Russia experiences major drought
  • A freer trading domestic gold market in China

On downside:

  • Hopes for RBA rate hikes down the road were dashed by the RBA statement: The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade. With growth likely to be close to trend, inflation close to target and the global outlook remaining somewhat uncertain, the Board judged this setting of monetary policy to be appropriate.
  • Selling of AUD/JPY as the JPY continues its grind higher, hurting Japanese investors who have heavy exposure to the higher yielding currencies.
  • Retail sales and building approvals data was soft overnight.

Looks like AUD in particular and commodity currencies in general will relinquish their leadership position and take a backseat to European currencies over the near-term as the market downshifts global growth expectations for the next few quarters. That is not to say the rally is done, just that it will unfold at a slower pace amid a broad dollar downtrend.

AUD/USD has shrugged off its early weakness and extended it bounce to 0.9150 so far, the highest in three months.