After data out of China showed inflation met with expectations in April and Foreign Investment bettered the market consensus in the same month, heightened demand for high-yielding assets caused the Australian Dollar to climb versus most of its major peers.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate advanced by around 0.4% during Monday’s European session.
During Tuesday’s Australasian session the ‘Aussie’ (AUD) strengthened versus most of its major peers following positive inflation data from China. April’s Consumer Price Index met with the market consensus of 2.3% on the year. In addition, April’s Producer Price Index came in at -3.4%; eclipsing the market consensus of -3.7%.
The positive data out of China caused commodity prices to rally, in turn supporting demand for the high-yielding Australian Dollar. On Tuesday evening the ‘Aussie’ extended gains after China’s annual Foreign Direct Investment hit 6.0% in April, bettering the median market forecast 5.0%.
Australian Dollar gains have been somewhat limited, however, and slowed overnight during the European session. This is thanks to ongoing political turmoil after Australian Prime Minister Malcom Turnbull called for a snap election just eight-months after deposing predecessor Tony Abbott.
‘The governor-general has accepted my advice to dissolve both houses of parliament effective tomorrow morning, and call an election for both houses, a double dissolution, on 2 July,’ Turnbull said at a press conference in Canberra. ‘Australians will have a very clear choice — to keep the course, maintain the commitment to our national economic plan for growth and jobs, or go back to Labor, with its high-taxing, higher spending, debt and deficit agenda. I will be seeking a mandate from the Australian people as the prime minister of this country to carry out this [economic] plan.’
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending in the region of 0.5093 during Tuesday’s European session.
Overnight the British Pound strengthened versus most of its currency competitors despite registering mixed results from trade data. Whilst the monthly readings for the UK’s trade balance saw the deficit narrow beyond expectations in March, the quarterly trade data was less impressive, having seen the deficit widen the most in 8-years.
David Kern, the British Chambers of Commerce chief economist, said: ‘In spite of the small improvement seen in March, the UK’s trade deficit worsened over the quarter and remains unacceptably large. The trade figures are a further reminder that our external position remains vulnerable. It needs to be a national priority to support businesses in exporting goods and services, and additional efforts are needed to help firms to break into new and faster-growing markets.’
With trade data not impressive, the Pound’s appreciation is therefore likely to be the result of easing ‘Brexit’ fears. This is probably in response to former NATO and US Security Chiefs urging the UK to vote to remain in the EU for security purposes. Even a report that showed the gap between those voting to remain and leave within big businesses has narrowed has not been enough to offset Sterling gains.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate dropped to a low of 0.5061 during Tuesday’s European session.
During today’s session there will be a number of Australian ecostats with potential to provoke Australian Dollar to Pound Sterling exchange rate volatility. May’s Westpac Consumer Confidence Index, March’s Investment Lending and March’s Home Loans data will be most closely watched by investor.
For those trading with the British Pound, political developments will likely continue to be the main driver of movement. With that said, however, the UK’s Industrial Production and Manufacturing Production data, due for publication late this afternoon, could cause significant AUD/GBP volatility.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate reached a high of 0.5102 overnight.
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