Following a better-than-expected fourth quarter Consumer Price Index, the Australian Dollar (AUD) has remained on a bullish run.
Recent market optimism evaporated rapidly on Tuesday as the Shanghai Composite Index slipped 6.4%, following the latest downturn in the value of oil as trader confidence sharply declined. This renewed volatility saw the Yuan (CNY) pulled down against rivals as concerns continue to mount over the health of the world’s second largest economy. However, the People’s Bank of China (PBoC) intervened to inject 440 million Yuan into markets in a move designed to increase liquidity ahead of markets’ closure for the Chinese New Year celebrations. Signalling that Beijing remains committed to stimulating the domestic economy, this prompted an increase in risk appetite that consequently boosted the ‘Aussie’ (AUD) across the board.
Demand for the Australian Dollar was also driven higher as a result of Wednesday’s Australian Consumer Price Index report, which showed that baseline inflation had continued to strengthen on the year in the fourth quarter of 2015. While the weighted median measure proved a little less encouraging, weakening from 2.1% to 1.9%, this nevertheless failed to dent the bullishness of the antipodean currency. Investors appear to remain confident that the Reserve Bank of Australia (RBA) will opt to leave interest rates unchanged at next week’s policy meeting, with the relative strength of the domestic economy in the face of negative global headwinds and cooling domestic housing market seeming to rule out an imminent rate cut. As a result the Australian Dollar to Chinese Yuan (AUD/CNY) exchange rate has been trending in the region of a three-week high.
The first Federal Open Market Committee (FOMC) of the year is likely to provoke fresh volatility for commodity-correlated and emerging-market currencies ahead of the weekend as investors will be hoping for some insight into the pace of the Fed’s current monetary tightening cycle. If policymakers take a more dovish tone, as expected, the ‘Aussie’ and Yuan are likely to take some heart from the prospect of the US Dollar (USD) remaining softer for longer.
At the time of writing, the Australian Dollar to Chinese Yuan (AUD/CNY) exchange rate was making strong gains around 4.6338, while the Chinese Yuan to Australian Dollar (CNY/AUD) pairing was slumped in the region of 0.2156.
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