Talking Points:
- Australian wage costs came in exactly as expected in the year’s first quarter
- Consumer sentiment also weakened a little in this month’s Westpac survey
- The Aussie Dollar was unmoved, focusing on interest rate differentials instead
Find out what investors think about the Australian Dollar’s prospects at the Sentiment page.
There wasn’t much for Australian Dollar traders to get their teeth into Wednesday with news that wages rose exactly as expected in the first quarter of the year.
The official Wage Cost Index rose by 0.5% on the quarter and 1.9% on the year, in both cases the same rate of increase as seen at the end of 2016. The RBA’s last set of monetary policy meeting minutes suggested that the panel sees only modest wage pressure in the coming months, and these latest numbers would seem to confirm that view.
The problem many data have now, as far as markets are concerned, is that they are unlikely to shift the dial of Australian interest rate expectations very far.
At present futures markets don’t price in any change to current, record-low Australian rates this year. Admittedly there is a strong feeling that the next move, when it comes, will be an increase. This is based both on official comment and the fact that consumer price inflation is now back within the Reserve Bank of Australia’s target band. However, such a move is still not fully priced over the markets’ forecast horizon which ends in October 2018.
Earlier Wednesday the Aussie got a small knock from news that consumer confidence had weakened in May. Major local lender Westpac’s index on the subject dropped 1.1% on the month, accelerating its fall from April’s 0.7% decline.
Still, AUD/USD has remained around the 0.7420 are for much of the Asia/Pacific morning, with these data largely passing it by.
The Aussie had come under pressure this year as the presumed rise in US interest rates would erode completely its long-held yield advantage over its US cousin. However, softer economic numbers Stateside have put the magnitude of US rate hikes in renewed doubt, lending the Aussie a degree of support.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
