Australian Dollar Gets Short-Lived PPI Boost

Talking Points

• The Australian Dollar gained on slightly stronger Producer Price Index data
• But markets already knew that consumer prices for the same period had underwhelmed
• Sure enough, the Aussie’s gain was curtailed

The Australian Dollar got a modest bounce Friday on news that local factory-gate prices rose a bit more than expected as 2016 wrapped up.

The Producer Price Index was up 0.5% in the fourth quarter compared to the third, according to official figures. That was above the 0.3% which markets had been looking for. The index rose 0.7% on-year, once more beating forecasts which averaged out at a 0.5% gain.

AUD/USD leaped up to 0.75362 in short order after the data, but has already started to slip back again. The PPI data’s thunder had already been stolen at least to some extent by the release of consumer price numbers for the same period earlier this week. These missed expectations.

Consumer prices are much more closely linked to likely central bank policy action than the PPI, via direct mandate. That means the latest PPI data probably won’t alter the view that, while record-low Australian interest rates may fall no more, they are unlikely to rise much anytime soon either.

With US rates expected to rise further – and possibly much further – in 2017, the interest-rate attractions at least are all on the “USD” side of AUD/USD for now.

The current general backdrop as the week bows out is for modest US Dollar strength within pretty tight ranges as investors continue to weigh President Donald Trump’s protectionist leanings with promises of fiscal stimulus. That can clearly be seen on the chart below:

Up, then back again: AUD/USD

Chart Compiled Using TradingView

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--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX