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Australian Dollar improves after CPI data

26 October 2016 by News Desk

Australian Dollar demand surged following better-than-expected Australian CPI data

Australian DollarAustralian Dollar markets had been concerned that Australia’s Q3 inflation scores would be disappointing as they piled into the Australian Dollar AUD throughout Tuesday’s session, according to currency specialists TorFX

Demand for the Australian Dollar only surged once Australia’s key Q3 Consumer Price Index (CPI) was published.

Quarterly inflation came in at a better-than-expected 0.7%, up from the previous quarter’s 0.4%. Yearly inflation also impressed, improving from 1.0% to 1.3%.

As a result, bets that the Reserve Bank of Australia (RBA) would reintroduce its easing bias sooner than expected fell back considerably, and the Australian Dollar soared across the board in Wednesday trade.

New Zealand Dollar (NZD) – The Pound to New Zealand Dollar exchange rate slipped back towards its record-low levels on Tuesday after the Pound was undermined by comments from UK Chancellor Philip Hammond.

Sterling floundered as it attempted to hold above GBP/NZD’s lows, and the pair managed to avoid falling back to last week’s lowest point.

The New Zealand Dollar was unable to capitalise on a boost in risk caused by Australia’s better-than-expected inflation scores. However, the ‘Kiwi’ may see more inspired movement in Thursday trade if New Zealand’s trade deficit scores impress.

Australian Dollar improves after CPI data

Pound Sterling (GBP) – After holding its ground on sustained advances for about a week, the Pound experienced another slump on Tuesday as investors reacted to comments made by UK Chancellor Philip Hammond.

Inspiring an uptick in concerns about the future of monetary policy from the Bank of England (BoE), Hammond stated that the government had not and would never refuse a quantitative easing scheme. This indicated to markets that the UK government was prepared and willing to accept an extension to QE, should the BoE plan it. Hammond also stated that the low value of the Pound was likely to cause spikes in inflation. Bets of further BoE easing increased following the news, and the Pound fell.

In a testimony from BoE Governor Mark Carney to the House of Lords on Tuesday afternoon, the BoE boss dropped no hints on the future of monetary policy. As a result, Sterling recovered slightly from its worst levels but was still well down on Wednesday.

US Dollar (USD) – The Pound to US Dollar exchange rate drooped on Tuesday, after the Pound was weakened by comments made by Britain’s Chancellor, Philip Hammond.

As a result, GBP/USD hit a new 31-year-low, but recovered slightly by the end of the day.
Meanwhile, the US Dollar continued trending strongly on Tuesday and was bolstered by yet another increase in bets that the Federal Reserve will hike US interest rates in December. The latest increase (futures now as high as 71%) was caused by a surprisingly strong US house price report, which came in at 0.7% month-on-month and 6.4% year-on-year. The ‘Greenback’ was also boosted by another hawkish Fed official. Policymaker Charles Evans stated that he believed there would be three hikes by the end of 2017.

However, on Wednesday morning the US Dollar’s movement was limited by a surge in demand for the risk-correlated Australian Dollar.

Euro (EUR) – The Pound to Euro exchange rate plunged on Tuesday afternoon as investors sold off the Pound due to comments made by UK Chancellor Philip Hammond.

While the Euro continued to perform poorly due to last week’s European Central Bank (ECB) news, the currency was bolstered slightly by the day’s Eurozone stats – which all beat expectations. The IFO published its October business confidence report for Germany, which saw business climate improve from 109.5 to 110.5, current assessment from 114.7 to 115, and expectations from 104.5 to 106.1.

Eurozone investors were also cheered slightly by news that Greece had finally been granted its latest bailout package – €2.8b of aid – after meeting the milestones set by the 3rd bailout.

Canadian Dollar (CAD) – The Pound to Canadian Dollar exchange rate slipped from its sturdy trade on Tuesday as the Pound was sold across the board on fresh Bank of England (BoE) stimulus concerns. The Canadian Dollar remained weak from recent ecostats and commodity news however, allowing Sterling to recover some of the day’s losses by Wednesday morning.

It appeared as if oil prices would continue to slip for a little while longer, as concerns on a supply glut for Canada’s biggest commodity export re-emerged despite OPEC output cap hopes. Analysts and investors are increasingly questioning the effectiveness of the output cap before it’s even begun as many non-OPEC oil producers have stated they would not take part.

Disclaimer: This update is provided by TorFX, a leading foreign exchange broker, its content is authorised for reuse by affiliates.

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