• Australia Q4 CPI, RBA Trimmed Mean CPI jumps past forecasts.
• Australian business confidence fell and is below the level during the Delta wave last year.
• Escalating geopolitical tensions weighs on market sentiment and makes traders stay away from riskier aussie.

Australian dollar trades downside against the American dollar at Tuesday despite the inflation data that surprised to the upside in a big way.  

Australian core inflation had accelerated to its fastest annual pace since the year 2014 in the December quarter since the fuel and housing costs created broad-based price pressures; this is a shock that will stoke market speculation of an early hike in interest rates.

Australian Bureau of Statistics revealed data that showed CPI Consumer Price Index had rose to 1.3% Vs 0.3% expectation in the fourth quarter and had rose to 3.5% Vs2.1% expectation for the year.

Moreover, The trimmed mean measure of core inflation favored by the Reserve Bank of Australia (RBA) rose to 1.0% in the quarter, above forecasts of 0.4%.  And the annual pace rose up to 2.6%, above the 2.1% forecast.

“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.

On the other hand, Australian business confidence had fell due to the  consumer spending  being hit by the surge in the coronavirus cases and played havoc with staffing, though sales overall were proving resilient so far.

National Australia Bank (NAB) NAB.AX survey on Tuesday showed its index of business confidence had slid 24 points to -12 in December, which is below the level during the Delta wave last year.

Elsewhere, Business conditions had eased by 3 points to +8, since sales held firm at +14 and profitability actually edged up a point to +10. This drag came from its measure of employment, which dropped 9 points to +2.

NAB chief economist Alan Oster said  “It fell despite strong jobs growth reported in official data, reflecting the complexity of the labour market situation as businesses faced growing worker shortages and the prospect of a ‘shadow lockdown’ through the summer.”

Traders seem to be convinced about an eventual Fed lift-off in March and have been pricing in a total of four hikes in 2022. This, along with escalating geopolitical tensions, weighs on investors’ sentiment and further collaborates to drive flows away from the perceived riskier aussie.

AUD/USD 4 Hour Chart:

Support: 0.7092 (S1), 0.7043 (S2), 0.6995 (S3).

Resistance: 0.7189 (R1), 0.7237 (R2), 0.7286 (R3).

The CPI report favors the Aussie, However traders remains cautious in the riskier market sentiment. We expect a mixed trend for AUD/USD.