It's shaping as another volatile session for the Australian dollar today

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After rocketing to as high as .7366 in the immediate aftermath of the release of the RBA’s May monetary policy minutes on Tuesday — something that revealed the decision to cut interest rates was far closer than what many had imagined — the Australian dollar has fallen modestly in overnight trade, weighed down by strong US economic data and hawkish commentary from several officials from the US Federal Reserve.

“The USD remained firm overnight and US 2-yr swap rates lifted by 3bps to 0.9450% on favourable US economic data,” wrote Elias Haddad, senior FX strategist at the CBA in his Wednesday morning note.

“US housing starts and industrial production rose more than expected in April. On the inflation front, US headline CPI accelerated at an annual pace of 1.1% in April from 0.9% in March. US core CPI inflation also matched participants expectations slowing to an annual rate of 2.1% in April from 2.2% the previous month. That is the sixth straight month core CPI inflation has been above 2% per annum, raising speculation the Fed will lift rates sooner than money markets currently discount.”

Further helping to underpin the US dollar’s gains, and undermine the Aussie, there was also a number of remarks from Fed officials overnight indicating that a series of US interest rate hikes this year was still a possibility.

“On the speaker front, FOMC non-voters Williams & Lockhart reiterated they still see the possibility for the Fed to raise interest rates two or three times this year,” noted Haddad.

As a result of the twin factors of strong US data and upbeat commentary from the Fed, the AUD/USD eventually closed the session at .7322, an increase of 0.48% from Monday’s close.

As at 7.55am AEST, it is currently trading unchanged for the session.

AUD/USD 5-Minute Chart

Turning to Wednesday’s trading session in Asia, there are a number of events that have the potential to move the Aussie.

At 11.05am AEST RBA assistant governor Guy Debelle will deliver a speech in Beijing entitled “Developments in Global FX Markets and Challenges in Currency Internationalisation from an Australian Perspective”.

The title alone suggests it has the potential to be market moving, particularly for the Aussie given Debelle’s speech is from an Australian perspective.

That speech will be followed soon after by the release of Australia’s March quarter wage price index at 11.30am AEST. Having grown by just 2.16% in the 12 months to December 2015, the lowest level on record, markets expect annual wage growth to remain around these levels.

“We expect wages growth of 0.5% QoQ in Q1 which would leave annual wages growth at 2.2%, in line with participant expectations,” says Haddad. “Softer Q1 wage growth would raise odds the RBA may cut rates again sooner which will weigh on AUD.”

Outside of the domestic releases, markets will also have to digest March quarter GDP figures from Japan at 9.50am AEST along with April new house price data from China at 11.30am AEST.

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