Trading the News: Australia Wage Price Index (WPI)

Updates to Australia’s Wage Price Index (WPI) may fuel the recent weakness in AUD/USD as the headline reading is expected to hold steady at an annualized 2.1% in the first-quarter of 2018.

Image of DailyFX economic calendar

Signs of stagnant wage growth may spark a bearish reaction in the Australian dollar as it encourages the Reserve Bank of Australia (RBA) to retain the record-low cash rate throughout 2018. In response, Governor Philip Lowe and Co. may stick to the current script at the next interest rate decision on June 6, with AUD/USD at risk of facing headwinds ahead of the meeting as market participants push out bets for an RBA rate-hike.

However, a positive development may prop up AUD/USD as it puts pressure on the RBA to start normalizing monetary policy, and the central bank may start to change its tune in the second-half of the year as ‘further progress in reducing unemployment and having inflation return to target is expected.’ Sign up and join DailyFX Currency Analyst David Song LIVE for a broader discussion on current themes and potential trade setups!

Impact that the Australia WPI had on AUD/USD during the previous quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q

2017

02/20/2018 00:30:00 GMT

2.0%

2.1%

-11

-81

4Q 2017Australia Wage Price Index (WPI)

AUD/USD 15-Minute Chart

Image of AUDUSD 15-minute chart

Australia’s Wage Price Index (WPI) unexpectedly increased for the second consecutive quarter, with the headline reading climbing to an annualized 2.1% from 2.0% in the three-months through September.

The development was overshadowed by a 19.4% decline in construction work done, which marked the biggest decline since the recordkeeping began in 1986. The Australian dollar struggled to hold its ground following the mixed data prints, with AUD/USD grinding lower throughout the day to close at 0.7804.

AUD/USD Daily Chart

Image of AUDUSD daily chart
  • The rebound in AUD/USD appears to have fizzled ahead of the 0.7590 (100% expansion) region as it snaps the recent series of higher highs & lows, with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator flops ahead of trendline resistance.
  • A fresh bearish sequence has started to take shape, with a break of the monthly-low (0.7412) bringing the 0.7340 (61.8% retracement) area back on the radar, which largely lines up with the 2017-low (0.7329).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.