Australian consumer sentiment amp upcoming OPEC meeting

The Reserve Bank of Australia’s (RBA) decision to hold off rate cuts this month was somewhat vindicated by the consumer sentiment numbers which were released today, showing confidence has surged to a 19 month high as the RBA’s recent 150 basis point cuts feed through the market. The sentiment index for November added 5.2 points to 104.3, according to Westpac and Melbourne Institute who conduct the monthly measure. The index hasn’t been above the 100 level since February.

The confidence numbers, coupled with reasonable jobs data out last week, are likely to see the RBA on hold next month and on holiday in January, making a February cut likely if things don’t improve – something we have reiterated in recent months. The Australian dollar has been the main beneficiary of this timing impact, last trading at US$1.0448 despite a soft copper price which is struggled to find any momentum in recent days near US$3.48/lb. The Australian dollar has some very solid support now near the US$1.0378 mark and if US markets remain flat for the next few weeks, it could firm-up more as the chance of a December cut diminish.

Keep an eye on OPEC

Our base case assumption since mid September has been for Brent crude to trade within a band of US$105-115 per barrel. We reiterated this view in a note titled “Saudi Arabia’s comments halt oil price rally post QE3”. With an OPEC meeting scheduled on 12 December in Vienna, representatives from key production members are likely to become more vocal over the next few weeks. This will be crucial for direction in oil markets, particularly in light of the Obama win and ongoing geopolitical tensions in the Middle East. We plan to monitor the situation very closely.

Bottom line – the $105-$115 price band could break in the next few weeks, most likely on the downside.