Risk taking came back to the fore in NY trading and the US dollar was once again sold as a result. US equities rallied a smart 1.5% as the ISM nonmanufacturing report showed a better than expected 50.9 print for September after a 48.4 result the prior month. The market seems to have forgotten that downright ugly employment report last Friday and the bulls took charge once again.  Commodities went on a tear on the back of the better data as well. Brent crude oil reversed the early weakness †when it plumbed the depths below $66 †and managed to rally back towards the $68 zone ahead of the close. Gold went absolutely bonkers and, after testing crucial support near 1003/1002, soared to session highs by 1017/1018 †where it still rests.

The rally in stocks and commodities saw the US dollar come under significant pressure all session and the currency felt decidedly better offered throughout the span. EUR/USD jumped from a NY open near 1.4625 to a 1.4670 high before all was said and done. More impressive was the rally in the so-called commodity currencies. AUD/USD screamed to a high just shy of the 0.88 mark while USD/CAD plunged back below the 1.07 area. More recently, Kiwi just printed a fresh high for the year at 0.7315 as New Zealand business confidence showed a considerable advance to +36 in the third quarter from -25 in 2Q.

The volatility in the commodity currencies is far from over as we will see the RBA rate decision and statement tonight at 1130pm NY time. While the market is looking for no change to the 3.00% rate, there are a couple of strategists expecting a 25 basis point hike †so the risk exists. Even if they telegraph the potential for a hike ahead of year-end, we think AUD will look decidedly better bid. Look for a journey back to the 2009 highs by 0.8860/65 if the bank comes out on the overly hawkish side.

Upcoming Economic Data Releases (Asia Session) prior expected

10/5/2009  22:30 GMT US  Fed's Dudley Speaks at Fordham Law School in NY  

10/5/2009  23:50 GMT JN  Loans & Discounts Corp YoY  AUG  2.40%  - - 

10/6/2009  0:30 GMT AU  Trade Balance  AUG  -1556M  -900M 

10/6/2009  3:30 GMT AU  RBA CASH TARGET  6-Oct  3.00%  3.00%