Narrow ranges in the foreign exchange market continued for the most part, and the US dollar is a little softer.  The Reserve Bank of Australia did not talk the Aussie lower, and the data were better than expected.  This sent the Australian dollar sharply higher.  Its 1.25% gain is the biggest in two months.  This coupled with gains in Chinese stocks (Shanghai Composite + 3.7%) and firmer commodity prices, including oil, are helping to lift the dollar-bloc currencies more generally. 

The Australian dollar is trading at eight-day best, just below $0.7400.  It had fallen to fresh multiyear lows at the end of July near $0.7235.  The RBA left cash rates unchanged at 2.0% like nearly every had expected.  In past statements, it argued that a weaker currency was both necessary and desirable.  This time it recognized that the Australian dollar had depreciated in line with key commodity prices. 

Separately, Australia reported stronger than expected retail sales and a smaller than expected trade deficit.  June retail sales rose 0.7%.  The consensus was for a 0.4% increase.  The May series was revised to 0.4% from 0.3%.  This put Q2 real retail sales up 0.8%, twice what consensus forecast.  The June trade deficit was A$2.933 bln, just less than expected, though still larger than the downwardly revised A$2.677 bln deficit in May.   Exports rose 3% while imports rose 4%. 

Caution is still in order. Today's Aussie gains are corrective in nature.   It is obvious that RBA policy must remain accommodative.  monetary policy in the US and UK will shift in the other direction, even if the precise timing is being debated.  Moreover sentiment may prove fickle if the employment data later this week disappoints.  The Australian dollar has not closed above its 20-day moving average since June 25.  It is found today near $0.7365. 

A poor milk auction later today in New Zealand, which sets up for a disappointing Fonterra meeting later this week, could see the Kiwi stall in front of its 20-day moving average (~$0.6625).  The US dollar peaked near CAD1.3180 yesterday and is consolidating the move today.  Thus far, it has held above CAD1.3100.   Sentiment is poor as it has become clear that the Canadian economy is the worst performing of the high income economies here in 2015.  It has contracted each month this year.  Monetary policy divergence with the US, weak oil prices and the political uncertainty raised by the October election may limit corrective gains in the Canadian dollar.