AUD/USD rallies strongly on expectations of less dovish RBA

FXStreet (London) - AUD/USD has rallied strongly ahead of the Reserve Bank of Australia’s rate decision and accompanying statement tomorrow. AUD bullishness comes despite China slowdown concerns and subdued risk appetite.

EM worries damp AUD demand

The Aussie dollar had been under pressure thanks to emerging market volatility and contagion worries dragging on risk appetite demand for the higher-yielding currency.

In addition, weakening Chinese data has raised concerns over commodity demand. Tightening of policy from the Communist Party has weighed on manufacturing and ramped up money market rates.

Rising inflation cuts further RBA rate cut bets

Though the RBA will almost certainly hold rates tomorrow, expectations are for a less dovish RBA. A weaker AUD has translated into accelerating inflation, making it less likely that the central bank will move to cut rates further. Markets will be focussed on the tone of the language in the statement accompanying the rate announcement and for concern over AUD weakness feeding into further inflation.

AUD/USD is currently trading at USD0.8802 on an unbroken rally though from a session low of USD0.8738, up 0.46 percent.