Aussie dollar flat despite turbulent offshore trade

The Australian dollar gained in the offshore session overnight, up 1 percent and in line with rallies in U.S. and European equities after financial market sentiment improved.

On Wednesday morning, the Australian dollar was trading at 70.16 U.S. cents, virtually unchanged from 70.17 U.S. cents at Monday's Asian close. Australian markets were closed on Tuesday for the Australia Day public holiday.

Commodity currencies gained ground on a softening U.S. dollar overnight as U.S. and European equities rallied on Tuesday as oil staged a comeback after Iraq's oil minister said Saudi Arabia and Russia are more flexible about cooperating to cut crude oil output.

Oil oversupply concerns have seen prices fall 75 percent from their peak. The World Bank is suggesting prices will continue to fall after revising their 2016 median oil forecast down to 37 U.S. dollars per barrel from 51 U.S. dollars just three months ago.

The Australian dollar is likely to remain supported throughout the rest of the week as local inflation data comes in line with market consensus, while the U.S. dollar will struggle to make new cyclical highs, Commonwealth Bank of Australia senior currency strategist Elias Haddad said.

However, there is a risk of a downside surprise, even though the market's median estimate for the headline Consumer Price Index is a 0.3 percent increase, Westpac Bank strategist Imre Speizer said.

"Given the historical relationship between New Zealand and Australian CPI, and New Zealand's recent negative surprise, markets will be braced for something lower," Speizer said.

At 10:06 a.m. local time, the Australian dollar is trading at 69.95 U.S. cents. Endit