Strong Chinese data boosts the Australian Dollar

The Australian Dollar has received another boost after considerably stronger Chinese inflation data released yesterday which clearly showed an improving outlook in China.

Inflation soared from 0.2% in December to 1% in January and considerably higher than expectation of 0.7%. The higher numbers point to a brighter economy in China and complement the much better than expected trade data from last week.

Considering China is Australia’s largest export market this bodes well for the Aussie Dollar and further growth in China will only help the Australian Dollar to strengthen further.

The Aussie has been further supported by other economic indicators including the National Australia Bank’s Business Survey which showed confidence amongst business at new highs. There is a raft of data released in the early hours of tomorrow morning to include unemployment numbers and inflation expectations. Australian unemployment currently stands at 5.8% and any deviation from this figure could see the Australian Dollar react accordingly.

AUD impacted by events in US

As a commodity currency the Australian Dollar is heavily impacted by events not just in China but also in the US, the world’s two largest economies. AUD exchange rates are going to be particularly sensitive to events in the US in the coming months in terms of both polices from the Trump administration but also as a result of interest rate increases by the Federal Reserve. We know that the US Fed is keen to pursue three interest rate hikes this year with the next one expected in March.

When these rate hikes do occur there is likely to be a movement of funds away from these higher risk currencies and back to a higher yielding US dollar especially considering the Reserve Bank of Australia are unlikely to hike. The uncertainty for both currencies stems from whether or not these rate increases do actually materialise.

As far as GBP/AUD is concerned the Pound still struggles to climb much higher against the Australian Dollar with Brexit around the corner. Upcoming political developments in the Brexit department over these next few weeks will almost certainly create additional volatility.

Thank you for reading my Australian Dollar report. For any questions regarding todays report or general questions relating to the Australian Dollar, call us on 01494 725 353 or email me here so a member of our team can assist you.


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