Australian dollar dips as wages jump

The Australian dollar is in negative territory on Wednesday. In the North American session, AUD/USD is trading at 0.6732, down 0.34%.

Australia’s wage growth climbs

Australia’s labour market has been tight for months, with unemployment at a 50-year low of 3.5% and not enough people to fill job vacancies. This has put pressure on wages, and the dam finally burst today as wage growth posted its largest quarterly gain since 2012. The Wage Price Index for Q3 climbed 1.0% QoQ, edging above the forecast of 0.9% and above the 0.8% in the second quarter. Wage growth is at 3.1% on an anualized basis, well below consumer inflation which is at 7.3%. Still, the Reserve Bank of Australia will be wary of a spectre of a wage-price spiral if wages continue to accelerate, which would greatly complicate efforts to curb inflation. The rise in wages hasn’t changed market pricing of a rate hike, with the RBA expected to deliver another 0.25% increase in December, which would raise the cash rate to 3.10%.

Inflation remains stubbornly high, and the RBA has responded with 250 points in tightening since May. The RBA has revised upwards its inflation forecast for the end of 2022 to 8.0%, up from 7.8%. The central bank had expected inflation to slow to 3%, the top of its inflation target range, by December 2024, but that has been revised to 2025.

The Fed is doing its best to dampen speculation that it plans to pivot in its rate policy and that the current rate-hike cycle is almost over. Fed policy makers have sounded hawkish since the inflation report sent the equity markets flying, as any dovish signals could hurt the Fed’s battle with high inflation. The Fed’s message remains that the fight with inflation is not over and even though there could be an easing of the pace of hikes next month, the Fed expects a higher terminal rate than it did in September.

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AUD/USD Technical

• AUD/USD is testing support at 0.6750. Below, there is support at 0.6603
• There is resistance at 0.6821 and 0.6934

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