FXstreet.com (Barcelona) - Following a quite upbeat testimony in Canberra on Friday from RBA governor Glenn Stevens, and which caught the trading market short AUD, the AUD/USD ended the Asia-Pacific week little changed from week ago levels. This is despite a near $100 drop in the gold prices in the past two weeks and which demands some attention from the AUD markets.

According to the NAB Research Team, “Gold is a significant term in our short-term ‘fair value’ model for the AUD/USD rate, but has been somewhat neglected of late in preference to the discussion about RBA interest rate prospects, the fate of industrial metals prices and global risk appetite.” The relative neglect of the gold price as a driver of the AUD in the past couple of years can be justified by the high volatility in gold/AUD correlations (e.g. -37% over 6 months, 54% over one year and just 12% over the past two years).

This compares with much higher longer run correlations (e.g. 83% over five years) and has occurred during a period where gold has assumed the characteristics of a quasi currency amid mistrust that the monetary experiments being played out by central bankers across much of the developed world will end in inflation tears. This is correlated in part to the perceived compromise to some central banks’ independence as the dividing line between monetary and fiscal policy has become increasingly blurred. Gold’s drop in February appears to owe something.