The only way I've been able to accomplish high moral is with items that give +1 or +2 to a certain races moral. Knights just seem happy regardless.
Also, putting an Elf and Dwarf in the army will result in lower moral for each.
That's all i've figured out, i'll try an army of all one race as typically i have some shaman mixed in.
Off topic: Does anyone know if shaman are available elsewhere than the islands? I'm starting to run out, totem happy!