- The Australian dollar is up for the fourth day in a row.
- A risk-off market failed to stop the AUD’s rally, courtesy of the broad weakness of the US dollar.
- Market participants mainly ignored the mixed macroeconomic data from the US.
The AUD advances as the US session rose 0.08%, courtesy of the continued selloff of the US dollar fueled by strong US consumer inflation At time of writing, the AUD/USD trades at 0.7290. Market sentiment is pessimistic, as evidenced by the decline in global stocks. In the FX market, risk sensitive currencies. It pulls back a bit, but the broad weakness of the US dollar limited the decline of the AUD.
Unemployment claims in the US increased, although the PPI slowed a bit
The latest developments in the US keep AUD / USD traders leaning on the dynamics of their economy. The US macroeconomic agenda showed that initial jobless claims for the week ending January 7 rose 230,000, above the 200,000 estimated by analysts, while prices paid to producers in December, also called PPI, slowed down, reached 9.7%, one tenth less than the 9.8% forecast.
Divergence between the Fed and the RBA
Fundamentally speaking, nothing has changed. The Federal Reserve would raise rates at least three times, presumably starting in March. Fed members during the week, led by Fed Chairman Powell and Vice President candidate Lael Brainard, said a rate hike is possible in March and they would like to lower the balance sheet sooner the better. The Fed members who expressed these views were: Fed Regional Presidents Bostic, Daly, Mester, and Barkin.
Leaving aside the Fed, the Reserve Bank of Australia (RBA) maintains its dovish stance. Furthermore, as noted in the latest RBA Monetary Policy Minutes, the Australian central bank said that it would maintain highly favorable monetary policy conditions and that the board would be patient. The RBA noted that inflation increased but remained low, compared to other economies, such as the US and the UK.
Therefore, the central bank divergence favors the US dollar. However, the extreme long USD positioning could have been caught off guard, causing some of those USD longs to reverse, weakening the USD.