The Pound Sterling to Australian Dollar (GBP/AUD) recovered from earlier losses to trade in the region of 1.86 as iron ore prices fell further and weighed upon the ‘Aussie’, the currency pair then softened slightly as the European session came to a close.
Earlier the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate fell sharply on Tuesday as trade data out of China boosted sentiment towards the ‘Aussie’ and as UK inflation data came in below forecasts.
UK Inflation Data Weakens Sterling
The Pound was weakened earlier in the session against the majority of its most traded peers as economists expected data to show that UK inflation fell below 1% for the first time since 2002.
Sterling then fell sharply and by a larger margin than anticipated as tumbling oil prices and an ongoing price war between UK supermarkets sent prices falling. Inflation in the country slid to just 0.5% on an annual basis in December, a figure which was worse than the 0.7% forecast by economists.
The figure was the weakest seen since the record low seen in May 2000 and will cause investors to further lower their expectations for the Bank of England to raise interest rates.
Chinese Trade Data Supports AUD Exchange Rate
China’s December trade surplus beat economist forecasts due to an improvement in exports and imports. According to the official data, China’s trade surplus narrowed from November’s figure of $54.47 billion to $49.61 billion, beating economist forecast for a surplus of $49 billion.
The report showed that China’s exports increased by 9.7% from the previous year and was up from the 4.7% rise in November and beat expectations for a 6.6% rise. Imports meanwhile declined by 2.4% adding to the 6.7% fall in November, less than the 7% drop forecast.
For the full year 2014, the country reported a trade surplus of $382.46 billion, compared with a surplus of $259.75 billion in 2013.
As China is Australia’s biggest trading partner any positive news out of the Asian nation lends support to the Australian Dollar.
There was further positive news for the ‘Aussie’ as a separate report released by the General Administration of Customs showed that China imported 86.85 million tonnes of iron ore in December and 932.5 million tonnes for the full year, both record-high volumes for the month and year respectively.
A rally in gold prices was also aiding the Australian currency as the precious metal’s spot price rose for the third session in a row, to $US 1,235.85 per ounce.
