The Australian dollar is playing second fiddle to the wild swings in the British pound

Alexander Hassenstein – Getty Images
  • The Australian dollar inched higher against the greenback on Tuesday, helped by a soft US CPI report for February.
  • The British pound was all over the place, reflecting swings in sentiment towards a Brexit deal.
  • All the major data and political events will arrive in the second half of Wednesday’s session. The UK parliament will vote on whether the UK should leave the EU without a withdrawal agreement.

The Australian dollar continued to push higher against the greenback on Tuesday, benefiting from an improvement in risk appetite and a soft US inflation report.

Here’s the scoreboard at 8am in Sydney on Wednesday.

AUD/USD 0.7081 , 0.0012 , 0.17%
AUD/JPY 78.84 , 0.22 , 0.28%
AUD/CNH 4.7485 , -0.0107 , -0.22%
AUD/EUR 0.6271 , -0.0012 , -0.19%
AUD/GBP 0.5416 , 0.0041 , 0.76%
AUD/NZD 1.0318 , -0.0029 , -0.28%
AUD/CAD 0.9454 , -0.0014 , -0.15%

After opening the session at .7069, the AUD/USD did little in Asian and European trade, moving either side of break even until North American markets opened.

Local economic data — again weak — was largely ignored by traders, reinforcing the view that softer economic growth and the likelihood of RBA rate cuts are now priced in.

The one major move during the session came following the release of US consumer price inflation (CPI) data for February with both the headline and core year-ended rates undershooting market expectations by a tenth, contributing to a fall in US bond yields and board-based weakness in the greenback.

The AUD/USD rose to as high as .7092 following the report before giving back ground towards the close.

Investing.comAUD/USD Hourly Chart

For the major crosses, all the action was once again in the British pound which whipsawed wildly as optimism towards a Brexit deal breakthrough turned to pessimism in the latter parts of the session.

The UK House of Commons voted down Theresa May’s latest Brexit withdrawal agreement by another significant margin, paving the way for a series of crucial votes in the days ahead.

“On Wednesday the House will vote on whether to leave the European Union without any agreement, known as a hard Brexit,” said Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.

“If the Parliament rejects a no deal Brexit, the government will bring forward a motion on whether Parliament wants to seek a short limited extension to the Article 50 deadline on Thursday.”

Capurso says the vote on whether the UK should leave the EU without a deal will be a crucial event, warning the GBP/USD would fall as much as 8% if MPs were to vote in favour of a hard Brexit.

“It is important to note a majority of MP’s are against a hard Brexit,” he said.

Turning to the day ahead, while there’s plenty on the economic calendar it’s unlikely that they’ll generate any significant movement in markets, at least in the first half of the session.

In Australia, the latest Westpac-MI consumer sentiment report for March will be released at 10.30am AEDT. If the separate ANZ-Roy Morgan index is any guide, a large decline is likely.

Elsewhere, Japan will also release PPI and core machine tool data.

Later in the session, the data calendar will pickup with industrial output from the Eurozone along with durable goods orders, PPI, construction spending and crude oil inventory data from the US the main headline acts.

As mentioned above, the UK parliament will also vote on a hard Brexit in the early hours of tomorrow morning on Australia’s east coast.

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