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Australian Dollar Gains As Still-Subdued Wages Edge Past Forecasts

Australian Dollar Gains As Still-Subdued Wages Edge Past Forecasts

David Cottle, Analyst

Talking Points:

  • Australian wage settlements edged past forecasts in 2017’s final three months
  • However, they remain quite depressed
  • Australian Dollar bulls liked the numbers nevertheless

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The Australian Dollar spiked up on Wednesday on news that wage growth in its home country had beaten expectations, if only narrowly.

The official fourth-quarter Wage Price Index for 2017 rose by 0.6% from the previous period and by 2.1% compared to the same quarter the year before. Respective gains of 0.5% and 2% had been predicted. The data show wages heading in the direction which the Reserve Bank of Australia would like. It is still wedded to record low interest rates in an effort to stimulate both growth and pricing power. While the former is evident, the latter remains elusive as it does in many developed economies.

Wage growth is held to be a key component of inflation so to that extent the Aussie’ gains on this data are understandable.

However, wage growth remains well below its long-term averages and, with overall consumer price inflation still below the RBA’s 2% threshold, it looks as though investors will have a while to wait before they see higher Australian interest rates. Indeed, a rise in the 1.50% Official Cash Rate is not priced into futures markets until the start of 2019. Australian consumers are struggling, not only with modest pay rises but also with vast debt levels.

The Australian Dollar more broadly remains very close to its recent, three-year highs against the US Dollar but seems now to be establishing a broad range some way below them. The RBA is unlikely to be pleased by its altitude, which it repeatedly worries about as a barrier to both inflation and growth.

However, it is also unlikely to increase the volume of its rhetoric at a time when broad US Dollar weakness is so clearly behind many currency moves and will probably just have to live with Aussie strength.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter: @DavidCottleFX or us the Comments section below to get in touch

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