[AndrewWoo]

AUD has shaken off its August obsession with Shanghai stocks and focus is now on potential rate hikes and commodities prices. The rate hikes when they come are likely to be swift, but the RBA have made it clear they will not hike till the sustainability of the recovery is confirmed. On the commodity side there is concern that Chinese restocking is coming to an end; combined with slower lending growth, we see a risk of lower commodities prices. The G20 FinMin meeting flagged concern about commodity volatility; an attempt to cap speculator positions would likely result in selling pressure as these are unwound - but as yet there is no clarity on likely timing for this.

In summary: rate hike expectations, commodity prices and gold are all supportive of the AUD: as long as these factors remain, AUD should stay bid. However a lot of good news has now been priced into AUD, and a shock to the assumptions, whether in the form of lower commodities or a downturn in global economy data prints, would likely hit the currency hard. For the moment however we will remain on the sidelines.