AUD/USD rises towards 0.7200 on strong Australia Q4 CPI

• AUD/USD extends early Asian rebound from five-week low on firmer Australia inflation data.
• Australia Q4 CPI, RBA Trimmed Mean CPI rose past forecasts, NAB data came in softer for December.
• Risk-off mood adds to the upside filters amid pre-Fed woes, Russia-Ukraine tension.
• US CB Consumer Confidence will decorate the calendar, all eyes on Wednesday’s FOMC.

AUD/USD pops 25 pips to 0.7175 as Australia Q4 inflation data came in stronger than expected during early Tuesday.

The Aussie pair initially consolidated the losses around the lowest levels since late December amid cautious optimism at the pacific major, mainly concerning South African covid variant Omicron.

That said, Australia’s fourth quarter (Q4) Consumer Price Index (CPI) rose more than 1.0% forecast and 0.8% QoQ to 1.3% while the YoY figures crossed the Reserve Bank of Australia’s (RBA) SOMP projections to 3.5%, versus 3.2% expected and 3.0% prior. Further, the RBA Trimmed Mean CPI crossed 0.7% market consensus with 1.0% figures on QoQ while also rising past 2.4% YoY forecast to 2.6%.

It’s worth noting that the National Australia Bank’s (NAB) Business Confidence and Business Conditions figures for December came in bleak as the former dropped to -12 versus 16 forecast whereas the latter eased to 8 from 12.

“We’ve written a lot about Australia’s upcoming CPI over the past week or two, so we don’t want to keep repeating ourselves. Suffice to say that the number will matter a lot. Most immediately for the RBA, which may need to acknowledge that a rate hike in 2022 is no longer completely out of the question. It could also have political implications, with the cost of living shaping up as a key issue for the upcoming Federal election,” said ANZ ahead of the key inflation data.

It’s worth noting that the recently easing covid cases in Australia join China’s latest monetary policy easing, as well as encouraging headlines from Evergrande to also favor the AUD/USD buyers.

However, fears of the Fed rate hike and a war of words relating to the Russia-Ukraine situations exert downside pressure on the market sentiment, as well as on the AUD/USD prices due to its risk barometer status.

While portraying the mood, the US 10-year Treasury yields stay firmer around 1.78% while the US stock futures and Australia’s ASX 200 print losses at the latest.

Looking forward, US CB Consumer Confidence for January, prior 115.8, will be crucial data for USD/JPY. However, major attention will be given to the risk catalysts.

Technical analysis

Two-month-old horizontal support near 0.7090-80 restricts short-term AUD/USD declines, which in turn joins the receding bearish bias of the MACD to favor the latest corrective pullback. However, the support-turned-resistance line from December 20, near 0.7170, followed by the 200-DMA level of 0.7200, challenges the Aussie pair’s further upside.