AUID/USD trades await US CPI and take note of the RBA/Fed divergence

• AUD/USD now depends on o the US CPI outside this Friday/
• The divergence between the Fed and RBA would be expected to keep AUD/USD hamstrung. 

At 0.7150, AUD/USD is lower by some 0.25% on the day and sat between a range of 0.7186 and 0.7135. The greenback continues to recover within a wider consolidative phase ahead of Friday's Consumer Price Index and next week's Federal Reserve meeting. 

The central bank divergence between the Fed and Reserve bank of Australia has undermined the Aussie of late due to the dovish tones of the RBA. Beyond the Fed, attention is already turning to the RBA February policy meeting. The Bank has made it clear that it will be considering its QE programme in the new year and speculation is already mounting that an end to the programme could be a favoured outcome for the Bank. A better tone in risk appetite more generally has allowed AUD/USD to pull back some ground. 

''On the back of decent economic data including the improved current account position we see scope for AUD/USD to recover modestly to the 0.72 area on a 3-month view,'' analysts at Rabobank said. 

US CPI eyed

Looking ahead for the week, the uS Consumer Price index will be key. Analysts at TD Securities explained that they expect inflation to slow significantly as fiscal stimulus fades and supply constraints ease, but we don't expect the data to be validated in the near term. ''The CPI likely surged in Nov, with a drop in oil coming too late to avert another large gain in gasoline and core prices boosted by rapidly rising used vehicle prices and post-Delta strengthening in airfares and lodging.''

Meanwhile, in the third quarter, Australian underlying CPI inflation has registered 2.1% YoY and at the bottom of the RBA’s 2% to 3% target and below the average of the past 30 years. This clearly contrasts with some of the high inflation prints for other G10 economies especially that of the US which is likely to helo AUD/USD remain underpinned should the US CPI come in hot. 

''The RBA is not expecting underlying inflation to reach the middle of its target until the end of 2023 and Lowe maintains that the first increase in the Cash rate may not be before 2024,'' analysts at Rabobank explained.   ''Even if this target slips, it is clear that the RBA will be well behind the Fed when it comes to hiking rates in the forthcoming cycle.''