China data inflates Aussie dollar

Orginally posted on stofs.com

In the last few hours we’ve seen upbeat business confidence data from Australia, but it has been the better than expected Chinese inflation prints that gave the Aussie dollar the real boost. However, gains have been proving difficult to sustain as European traders come on stream and the AUD/USD still stands a little way short of the target we discussed yesterday, those pre-US election highs around 0.7750. However we do have a private consumer sentiment print due at 11.30pm GMT this evening so again, anything that helps push the message that Australia can avoid dropping into recession this year will be precisely the sort of reading to bolster the currency further.

UK inflation data is due at 9.30am GMT this morning and we can expect that to be closely followed as last year’s slump in the pound starts to feed through in terms of rising prices. The expectation is that January’s CPI reading will come in at 1.9%, just below the 2% target of the Bank of England, but any overshoot here would arguably drive Sterling sharply higher. It pushes the idea that a rate hike would need to be delivered quickly to avoid the risk of inflation accelerating even faster.

We have a flurry of US economic data due for release ahead of the opening bell today including the PPI readings, but by all accounts it’s going to be Janet Yellen’s two day testimony to the Senate banking committee that holds the greatest potential. It’s feasible that she will be talking up the idea of a rate hike as soon as next month as bids are made to keep inflation in check. If this is delivered then look for EUR/USD to accelerate the downward path that has been established since the start of the month.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as an Investment Advice.

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