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Subdued Australia Wage Price Index to Curb AUD/USD Recovery

Subdued Australia Wage Price Index to Curb AUD/USD Recovery

David Song, Strategist

- Australia Wage Price Index to Hold Steady at 1.9%- Lowest Since Recordkeeping Began in 1998.

- Will Weak Household Earnings Keep the RBA on Hold Throughout 2017?

Trading the News: Australia Wage Price Index

Australia Wage Price Index

Australia’s Wage Price Index may curb the near-term advance in AUD/USD as household earnings are projected to hold steady at the record-low of 1.9% for the third consecutive quarter.

Why Is This Event Important:

Another lackluster print may dampen the appeal of the aussie as it encourages the Reserve Bank of Australia (RBA) to keep the cash rate at the record-low of 1.50%, and the central bank may stick to a dovish script throughout 2017 as officials warn ‘growth in housing credit had continued to outpace growth in household incomes, which suggested that the risks associated with household balance sheets had been rising.’ With that said, Governor Philip Lowe & Co. may endorse a wait-and-see approach for the foreseeable future as ‘wage pressures were expected to rise only gradually,’but an unexpected pickup in household earnings may fuel the recent series of higher highs & lows in AUD/USD as it boosts interest-rate expectations.

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Impact that Australia Wage Price Index has had on AUD/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q

2016

02/22/2017 0:30 GMT

1.9%

1.9%

+13

+26

4Q Australia Wage Price Index

AUD/USD 15-Minute

AUD/USD Chart

Australia’s Wage Price Index held steady at an annualized 1.9% for the second consecutive quarter to mark the slowest pace of growth since the series began in 1998, and the ongoing weakness in household earnings may encourage the Reserve Bank of Australia (RBA) to keep the cash rate at the record-low throughout 2017 amid the ongoing slack in the real economy. Despite the limited market reaction, the Australian dollar gained ground following the report, with AUD/USD closing the day at 0.7702.

How To Trade This Event Risk(Video)

Bearish AUD Trade: Household Earnings Remain Subdued

  • Need a red, five-minute candle following the release to consider a short AUD/USD trade.
  • If market reaction favors a bearish aussie position, sell AUD/USD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish AUD Trade: Australia Wage Price Index Exceeds Market Forecast

  • Need a green, five-minute candle to favor a long aussie position.
  • Implement the same setup as the bearish AUD trade, just in the opposite direction.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Near-term outlook for AUD/USD remains tilted to the downside as the pair carves a descending channel following the failed attempt to test the November high (0.7778), with a break/close below the Fibonacci overlap around 0.7330 (50% retracement) to 0.7360 (38.2% expansion) exposing the next region of interest around 0.7290 (50% expansion) to 0.7300 (78.6% retracement).
  • Indeed, the Relative Strength Index (RSI) highlights a similar behavior, with the oscillator extending the bearish formation from February; may see the former support zone around 0.7450 (38.2% retracement) offer resistance, which lines up with the 20-Day SMA (0.7455).
  • Interim Resistance: 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion)
  • Interim Support: 0.7150 (161.8% expansion) to 0.7180 (61.8% retracement)

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas!

IG Sentiment

Retail trader data shows 57.1% of traders are net-long AUD/USD with the ratio of traders long to short at 1.33 to 1. In fact, traders have remained net-long since May 03 when AUD/USD traded near 0.75395; price has moved 1.4% lower since then. The number of traders net-long is 5.0% higher than yesterday and 4.3% lower from last week, while the number of traders net-short is 2.8% lower than yesterday and 6.6% higher from last week.For More Information on Retail Sentiment, Check Out the New Gauge Developed by DailyFX Based on Trader Positioning.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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