Australian dollar gains after underlying CPI stronger than expected

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Investing.com - The Australian dollar gained smartly in Asia on Wednesday as underlying consumer prices gained more than expected in the second quarter.

AUD/USD traded at 0.9432, up 0.40%, after the data.

Australia's second quarter CPI rose 0.5% as expected, but underlying inflation, the average of trimmed mean and weighted median inflation that acts as a rough measure the central bank uses in its cash rate deliberations, rose 0.7%. This placed it on track for an annual rate at the top end of the Reserve Bank of Australia's 2% to 3% band.


Also, RBA Deputy Governor Philip Lowe said the country has shifted its foreign currency portfolio towards the Chinese yuan (renminbi) and currently has around 3% invested in that currency.

Overnight, the dollar traded largely higher against most major currencies after investors digested solid U.S. inflation and existing home sales numbers and determined the U.S. economy continues to improve and is in need of less support from the Federal Reserve.

The Labor Department reported earlier that the U.S. consumer price index rose 2.1% in June, unchanged from the previous month and in line with forecasts, which drew applause for the dollar.

On a month-over-month basis, U.S. consumer prices were up 0.3% after a 0.4% increase in May, also in line with expectations.

Figures that met but did not exceed Wall Street expectations bolstered the dollar, as a strong upside surprise could have rattled nerves and sent many investors rethinking what the Federal Reserve will do with monetary policy, thus creating uncertainty.

Market talk points to the Fed ending its bond-buying program around October and then raising interest rates some time in 2015, though the length of time that will pass between those two policy moves remains up in the air.

June's core inflation rate, which excludes food and energy costs, rose by just 0.1% from May and 1.9% on year, slightly below market calls for 0.2% and 2.0% readings, respectively, which illustrated how gasoline was driving the CPI up, though markets viewed the numbers as fundamentally healthy anyway.

Elsewhere, the National Association of Realtors reported earlier that existing U.S. home sales rose 2.6% to 5.04 million units in June from 4.91 million in May, beating market forecasts for a 2.0% rise to 4.97 million units.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was flat at 80.86.

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