Forex – Aussie rebounds as tame China consumer prices support
The Australian dollar rebounded in Asia on Tuesday as retail sales at home weighed on the outlook though tame consumer prices offset concerns about a spike in producer prices. In China, consumer prices for December rose 0.2% month-on-month, compared to a 0.3% gain seen and at an annual pace of 2.1% compared to 2.3% expected. Producer prices jumped 5.5% in December year-on-year at the fastest pace in five years, compared to a 4.5% gain seen. As well, China’s planning commission said economic growth in 2016 was expected to be around 6.7 percent, within a target of 6.5-7 percent.
Earlier in Australia, retail sales rose 0.2% month-on-month in November, less than the 0.4% gain expected. AUD/USD traded a at 0.7378, up 0.31%, with the currency highly linked to trade with top market China. USD/JPY changed hands at 115.60, down 0.34%. GBP/USD traded at 1.2167, up 0.06%, following sharp declines overnight related to Brexit. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased 0.26% to 101.66.
Overnight, the dollar edged lower against a basket of the other major currencies on Monday, while sterling was sharply lower as fears over prospects for a ‘hard Brexit’ weighed. Demand for the greenback continued to be underpinned after Friday’s U.S. nonfarm payrolls report for December, which showed a slowdown in hiring but the fastest wage growth in over seven years, supported the case for rate hikes this year. The Federal Reserve raised interest rates in December and indicated that it expects to hike rates three more times in 2017.
Higher rates boost the dollar by making the currency more attractive to yield-seeking investors. Boston Fed President Eric Rosengren on Monday called for the U.S. central bank to step up the pace of interest rate increases, warning that inflation could overshoot its target if it does not. The selloff in sterling came after British Prime Minister Teresa May on Sunday said that the country would not be keeping “bits” of European Union membership.
The remarks were seen as an indication that the UK won’t try to negotiate continued full access to the European single market when it leaves the EU. Sterling failed to find support after May said on Monday it was wrong to say a “hard Brexit” was inevitable.