Australian dollar calm after wage growth accelerates

• Australia wage growth accelerates in Q1
• JP Morgan expects Fed to trim rates

The Australian dollar is steady on Wednesday. AUD/USD is trading at 0.6650 in Europe, down 0.06% on the day.

Australian wage growth rises

Australia’s wage price index jumped in the first quarter. Wage growth rose 3.7% y/y, following an upwardly revised 3.4% in Q4 2022 and above the estimate of 3.6%. On a quarterly basis, wages rose 0.8%, unchanged from Q4 and just below the estimate of 0.9%.

The RBA is determined to bring inflation back down to the 2% target, and 3.7% wage growth is simply too high for the central bank. This supports an argument for the RBA to lift rates at the June meeting (or later down the road). The markets have priced in a 100% probability of a pause in June, according to the ASX RBA Rate Tracker.

The RBA minutes from the May meeting noted that the decision to raise rates was a close one, but concerns about inflation becoming entrenched won out and the Bank hiked by 25 basis points. The minutes didn’t provide much guidance for future moves, with policy makers saying further rates might be required, depending on economic and inflation data.

The Federal Reserve trotted out some members earlier this week to reiterate that no rate cuts are coming, and market pricing for a rate cut before the end of the year have fallen. According to CME’s FedWatch, the odds of a cut in September are 52%, compared to 72% a week ago. Still, there is support for rate cuts. JP Morgan said on Tuesday that “the market is right to be penciling in cuts”, as inflation remains too high and the US was likely headed for a recession.

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AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6699.  This is followed by 0.6761
• 0.6579 and 0.6517 are providing support

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