Forex - Australian dollar gains as underlying CPI higher than expected

Investing.com - The Australian dollar gained in the wake of mild inflation data as underlying prices dashed expectations for a near-term rate cut.

AUD/USD traded at 0.7981, up 0.57%, while USD/JPY changed hands at 118.14, up 0.25%. EUR/USD edged down to 1.1335, down 0.39%. The single currency hit 11-year lows against the dollar on Monday in the wake of a sweeping election victory for the anti-austerity Syriza party in Greece.

Australia said fourth quarter CPI rose 0.2% quarter-on-quarter and 1.7% year-on-year, below expectations of up 0.3% and up 1.8% respectively and well below the Reserve Bank of Australia's 2% to 3% inflation target.

But underlying inflation - the most important number watched by the market and the Reserve Bank - was more than expected at a gain of 0.7% and is likely to cool expectations for a near-term cash-rate cut.

Earlier the Westpac-MI published its leading index for December, which was unchanged at 97.89, breaking a pattern of sub-trend growth heading into 2015.

Overnight, the dollar extended losses against the other major currencies on Tuesday, after the release of mixed U.S. economic reports, as investors turned their attention to the Federal Reserve's upcoming policy statement on Wednesday.

The Conference Board said its index of U.S. consumer confidence improved to an eight-year high of 102.9 this month from a reading of 93.1 in December, whose figure was revised up from a previously reported 92.6.

Analysts expected the index to increase to 95.1 in January.

Separately, the U.S. Commerce Department reported that new home sales climbed by 11.6% to 481,000 units last month, above expectations for 450,000. New home sales in November were revised down to 431,000 units from a previously reported 438,000 units.

Data released earlier in the day showed that total U.S. durable goods orders dropped 3.4% last month, compared to expectations for a gain of 0.5%.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.31% to 94.56.