Demand for the Australian Dollar (AUD) generally improved on Tuesday thanks to a combination of a weaker US Dollar and bullish Chinese inflation data.
Commodity prices were boosted by the latest sign that the world’s largest economy is continuing to avoid a hard landing, allowing the Australian Dollar to advance strongly against many of its rivals.
The appeal of the ‘Aussie’ was also shored up by a solid improvement in the NAB business confidence index for January, which pointed towards greater domestic optimism.
Altogether this painted a more positive picture of the outlook of the Australian economy, helping to push the Australian Dollar Pound (AUD GBP) exchange rate higher throughout the day.
If this morning’s Westpac consumer confidence index offers a similarly encouraging indication as to the health of the domestic economy this could see the antipodean currency advance further.
However, as the tone of the Federal Reserve turned more hawkish overnight any strength from the latest raft of US inflation data could boost the odds of a March interest rate hike, to the detriment of the ‘Aussie’.
Sterling, meanwhile, has been under pressure after the UK consumer price index failed to rise as far as forecast in January.
While inflationary pressure strengthened from 1.6% to 1.8% on the year this was ultimately not enough to encourage investors.
This was not seen to offer the Bank of England (BoE) sufficient incentive to take a more hawkish view on monetary policy in the near future, reducing the odds of any imminent return to higher interest rates.
Although rising inflation has been viewed positively by investors this could provoke some concern if the latest UK average weekly earnings figures show that wage growth is still struggling to keep pace.
Signs that consumer spending is likely to be increasingly squeezed in the coming months could weigh heavily on the Pound this evening, given that this has been a key source of economic support in the wake of the Brexit vote.
Even so, if the House of Lords indicates that it may pass any amendments to the government’s Article 50 bill a reduction in fears of a hard Brexit could limit any AUD GBP exchange rate gains.