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Aussie shines as inflation rises, yuan advances

The Australian dollar surged on Wednesday as inflation topped forecasts, while the Chinese yuan reached a six-month high in the offshore market before trade talks between the United States and China this week.

Australia’s commodity-linked currency also got help from rising prices for iron ore, one of the country’s major exports, putting it on track to become the biggest winner against the U.S. dollar in early London trading.

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Data showed consumer prices rose 0.5 per cent in the December quarter, surpassing forecasts for a 0.4 per cent rise that led speculators to unwind some of their bets on a cut in interest rates this year.

“In the bigger scheme of things, the data prompted some degree of stabilisation  in interest rate expectations which is helping the Aussie,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The Aussie rose as much as 0.52 per cent against the U.S. currency to $0.7201 after struggling for most of January.

Futures now imply a 52 per cent probability of a quarter-point cut in the 1.5 per cent cash rate by the end of this year, compared with 70 per cent before the data.

The Chinese yuan traded in the offshore market gained 0.3 per cent to a six-month high of 6.7257 yuan.

The U.S. and China will hold two days of talks in Washington starting on Wednesday, the highest-level discussions since U.S. President Donald Trump and Chinese President Xi Jinping agreed a 90-day truce in their trade war in December.

Turnover in the Australian dollar and the yuan jumped in the six months ending October 2018 as rising trade tensions fuelled greater trading volumes.

Elsewhere, sterling was steady at $1.3072, after falling about 0.7 per cent against the dollar and the euro, following a series of British parliamentary votes on Brexit. (NAN)