AUD/USD…Falls on lower oil prices
Lower oil prices overnight weighed heavily on the Australian Dollar ignoring better than expected data out of China over the weekend. New Yuan Loans or demand for capital from Chinese banks for both private and business investment came in better than analysts forecast. The Australian Dollar amongst other things is a commodity currency and is closely correlated to the price movements in commodities. Lower prices in the commodities that it produces can lean towards a slowdown in economic growth and a lower risk approach from investors.
The Aussie has struggled to make any headway against the U.S Dollar as it has against the Pound and the Euro. Expectations of higher interest rates from the U.S at some stage in 2015 have created a demand for the U.S Dollar unseen in years along with an ending of Q.E (Quantitative Easing). During strong trends and market expectations of an event coming to fruition, assets tend to overshoot what may be their fair value and we have seen this time and time throughout history in both Bull and Bear markets.
GBP/AUD…Higher prices could be seen if CPI beats expectations
If those expectations suddenly change as we have seen with the Pound and the Euro compared to the Australian Dollar, these trends can quickly unravel back to what is perceived to be fair value. Speaking of which tonight in the U.K we have the release of the all important CPI or Inflation data, which analysts have forecast to come in higher than last month at 1.3%. One of the reasons for the extraordinary run by the Pound throughout November and December of 2014 was the expectation of higher interest rates in 2015 which was to put it politely ‘’dampened’’ by Mark Carney when he spoke after the release of the BOE interest rate decision last week. Some pundits even have rates on hold until 2016.
Accompanying the CPI tonight in the U.K we also see the release of PPI or Producer Price Index. This is a basket of Indexes which tracks the overall change in the prices of goods and services by the producers over a period of time. It is another way to track the inflation from the wholesale level. Investors are fickle and will track in and out of an asset upon any change in expectation of future movements and this is usually based around data the like of which we will see tonight out of the U.K