The Australian dollar initially recovered from lows below 0.85 against the dollar to challenge 0.8650 before fresh selling pressure triggered a slide to lows near 0.84.
The Reserve Bank of Australia increased interest rates to 6.50% from 6.25% at the latest council meeting. The bank retained a tightening policy bias, but was slightly more cautious over the outlook. The unemployment rate remained at the low level of 4.3% for July while there was a firm 21,800 increase in employment for the month.
Australian dollar moves were still influenced strongly by carry trades and the swings in high-yield currencies. Lower commodity prices unsettled the Australian currency on Thursday and Friday as risk aversion and growth fears had a negative impact.
Volatility is liable to remain higher in the short-term and the net risks point to underlying Australian dollar losses, although there will be significant rallies at times.
Canadian dollar
The Canadian dollar strengthened to test levels beyond 1.05 against the dollar before weakening sharply to 1.06 in volatile trading. There was little in the way of domestic economic data releases during the week
Oil prices provided initial Canadian dollar support, but energy prices weakened over the second half of the week as crude prices dipped towards the US$70 p/b level.
The Canadian currency was influenced strongly by the level of carry trades and risk aversion. Fresh market turmoil on Thursday pushed the Canadian dollar weaker as there was a retreat from high-yield currencies.
Expectations of further interest rate increases will provide Canadian dollar support, but carry trades will tend to remain dominant in the short-term and limit any gains.
Indian rupee
Indian rupee volatility has increased as global volatility has intensified although, given the underlying stresses, rupee moves were still contained. The Indian currency strengthened to near 9-year highs before weakening sharply to 41.0 with the currency close to 40.65 on Friday.
The rupee gained initial support from a recovery in the local stock market, but there was renewed losses for the bourse late in the week which undermined the currency.
The central bank increased the amount of MSS bonds which can be issued which suggests that intervention to curb rupee gains will be sustained. The bank also imposed tighter restrictions of foreign borrowing which will tend to curb capital inflows and restrain rupee gains.
There was heavy exporter selling when the Indian currency approached the 41.0 level against the US currency.
Volatility levels are likely to remain higher in the short-term with the net trend likely to be for rupee depreciation, although losses should still be contained.