AUD/USD approaches 0.7300 amid a risk-off market mood

The Australian dollar advances as the New York session ends approaches up some 0.08%, courtesy of the continuing US dollar sell-off spurred by hot US consumer inflation. At the time of writing, the AUD/USD exchanges hands at 0.7290. The market sentiment is downbeat, as portrayed by global equities falling. In the FX market, risk-sensitive currencies. Retreats some, but broad US dollar weakness capped the AUD fall.

US Jobless Claims increased though the PPI slowed a tick

Latest developments in the US keep AUD/USD traders leaning on the dynamics of its economy. The US macroeconomic docket showed that Initial Jobless Claims for the week ending on January 7 rose 230K, higher than the 200K estimated by analysts, while prices paid for producers in December, also called PPI, decelerated, came at 9.7%, a tenth lower of the 9.8% foreseen.

Fed and RBA divergence

Fundamentally speaking, nothing has changed. The Federal Reserve would raise rates at least three times, presumably beginning in March. Fed speakers through the week, led by Chief Powell, and Vice-Chair nominee Lael Brainard, said that a rate hike is possible in March and would like to reduce the balance sheet the sooner, the better. The Fed speakers who expressed those views were: Regional Fed’s Presidents Bostic, Daly, Mester, and Barkin.

Putting the Fed aside, the Reserve Bank of Australia (RBA) keeps its dovish stance in place. Additionally, as noted in the RBA’s last monetary policy minutes, the Australian central bank said it would maintain highly supportive monetary policy conditions, and the board would be patient. The RBA noted that inflation increased but remained low, compared with other economies, like the US and the UK. 

Therefore, the central bank divergence favors the US Dollar. However, extreme USD longs positioning could have been caught off guard, spurring the unwind of some of those greenback longs, weakening the USD.