Australian dollar holds recent gains as copper and gold prices head higher + China pledges to maintain growth at 7 pct

The Aussie has held recent gains which come on the back of a steep rise in commodity prices including gold.

AUD/USD hit 0.9286 on Tuesday, some way off its three-year low of 0.8999 hit on July 12th.

Before we get carried away in the hopes of an Aussie dollar rally it is worth remembering that the outlook for AUD remains negative. "In recent weeks the AUD has been consolidating. While positioning remains short and a squeeze probable, fundamental factors should see further weakness in time," say ANZ Research today. More on this in yesterday's report.

Commodity prices support the Australian currency

In a positive development for the commodity-dependent Australian currency we see gold is trading near a 1-month high on the back of strong physical demand in China and a fall in the US dollar.

Copper hovers around the US$7,000/t following the news the Chinese government is prepared to start expansionary monetary/fiscal policy in case GDP growth slips below the 7% level.

Over in China there is a promise to maintain strong growth

The performance of the Australian dollar remains highly correlated with the the Chinese economy, and today's news out of China is AUD supportive.

It was reported that Premier Li Keqiang will use 7 pct as the threshold at which the Chinese government is ready to act and start boosting growth.

Stimulus via railway building is tipped to be one of the mechanisms to boost growth.

In a further boost Analysts say effects of an earlier announced PBoC’s scrapping of the floor on bank lending rates that were set at 30% max below the benchmark rate may be seen in the third and fourth quarters of the year.

Bank deposit rates cap has been left unchanged suggesting Chinese state owned banks has partly won the case against complete bank rate liberalisation for now. Cancelling deposit rate ceiling would mean a shrinkage of banks’ profit margins.