AUD/USD returns above 0.7200

• AUD/USD pulled back above 0.7200 on Wednesday to trade at 0.7220, with the Australian dollar outperforming in the G10 space.
• Hopes for monetary easing from China helped base metals rise across the board.
• AUD is likely to get support from rising base metals and “remarkably resilient” Consumer Sentiment data.

The AUD/USD rallied above its 50-day moving average near the 0.7200 level to test an uptrend that was broken earlier in the week at 0.7225 on Wednesday. The pair’s 0.6% rebound from 0.7185 makes the Australian dollar the best performer within the G10 on the day, with the antipodean currency shrugging off a deterioration in the Westpac Consumer Sentiment survey. which was released during Asian session hours. The general sentiment index fell 2.0% MoM to 102.2, showing that optimism still outnumbered pessimism by a small margin (a score above 100 shows that there are more optimistic than pessimistic consumers). Westpac called the data a “remarkably resilient result” given the recent spread of Omicron, in contrast to previous much larger deteriorations during “Covid-19 events” (previous outbreaks). This could well be supporting the Aussie.

The rally in base metals was a key factor behind the Australian dollar’s outperformance on Wednesday. US copper futures are up more than 2.0% on the day, while the Bloomberg Industrial Metals Sub-Index, which tracks a basket of copper, zinc, aluminum and nickel prices, is up around 1 1.8%. Iron ore futures also saw substantial gains in Chinese markets during the Asian session on Wednesday, with the complex getting a boost not only from a weaker US dollar, but also from hopes of further monetary easing from the PBoC. Central bank Deputy Governor Liu Guoqiang said on Tuesday that more policy measures would be put in place to stabilize the economy, after surprising markets with a 10 bps rate cut on medium-term loan servicing on Monday.

Looking ahead this week, Australia’s December employment data will be released during the upcoming session on Thursday. If the number is high, it may encourage markets to anticipate already very aggressive RBA rate hike expectations. For reference, during the trading session on Wednesday, money market futures implied a 77% chance that the RBA will raise rates to 0.25% in May and then follow up with another four rate hikes before the end of the year, taking them to 1.25. %. But analysts believe the final straw (with regard to a possible RBA capitulation to aggressive market prices) could be if next week’s Q4 2021 consumer price inflation data is hotter. than expected. If AUD/USD can break the recent short-term uptrend, that could open the door for a move back above 0.7250.

Technical levels