AUD/USD pushes back above 0.7200 on resilient consumer sentiment numbers, strong base metal prices

AUD/USD recovered back above its 50-day moving average near the 0.7200 level to test an uptrend that it broke below earlier in the week in the 0.7220s on Wednesday. The pair’s 0.6% rally from the 0.7180s makes the Australian dollar the best performer within the G10 on the day, with the antipodean currency having shrugged off a deterioration in Westpac’s Consumer Sentiment survey which was released during Asia Pacific hours. The headline sentiment index fell 2.0% MoM to 102.2, showing that optimism still outweighed pessimism by a small margin (a score above 100 shows more consumers are optimistic than pessimism). Westpac called the data a “remarkably resilient result” given the recent spread of Omicron, contrasting it with previous much larger deteriorations during “Covid-19 events” (prior outbreaks). This could well be supporting the Aussie.

Upside in base metals was a key driver of the Aussie’s outperformance on Wednesday. US copper futures are up over 2.0% on the day, whilst the Bloomberg Industrial Metals subindex, which tracks a basket of copper, zinc, aluminum and nickel prices, is about 1.8% higher. Iron ore futures also saw substantial gains in Chinese markets during Wednesday’s Asia Pacific session, with the complex deriving a boost not only from a weaker US dollar but also hopes for more monetary easing from the PBoC. The central bank’s vice governor Liu Guoqiang said on Tuesday that more policy measures would be rolled out to stabilise the economy, after surprising markets with a 10bps Medium-term Lending Facility rate cut on Monday.

Looking ahead this week, Australia's December jobs data will be released during the upcoming Thursday Asia Pacific session. If strong, it may encourage markets to bring forward already very hawkish RBA rate hike expectations. For reference, during Wednesday’s session, money market futures implied a 77% chance that the RBA lifts rates to 0.25% in May and then follow that up with a further four rate hikes before the end of the year, taking rates to 1.25%. But analysts think that the straw that could break the camels back (regarding a potential RBA capitulation to hawkish market pricing) could be if next week’s Q4 2021 Consumer Price Inflation data comes in hotter than expected. If AUD/USD can break above the recent short-term uptrend, that could open the door to a move back above 0.7250.