AUD/USD Helped by Strong AU Wage Growth & Hawkish RBA Minutes

AUD/USD Analysis

The Reserve Bank of Australia has refrained from hiking over the past two meetings, as the labor market shows signs of easing, the economy is weak and price pressures are decelerating. The Consumer Price Index (CPI) moderated to 4.1% y/y in the fourth quarter, marking the smallest increase in a year.

However, inflation is far from the 2-3% target and policymakers don't expect a return to that range for nearly two more years. Historically high pay growth makes that goal harder and today's data revealed that wages grew 4.2% y/y in Q4, the most since 2009. This is also the first time in two years that the Wage Price Index outpaced inflation, risking a wage-price spiral.

The central bank stood pat in February, but refused to rule out further tightening and this week's accounts of that decision showed that officials discussed hiking rates ^[1], enhancing the hawkish bias. They want confidence that inflation is moving sustainably to target and the wage data don't help.

AUD/USD rises this week helped by the hawkish minutes and the WPI increase, which keeps pressure on the RBA for monetary restraint. It tests the EMA200 and has the chance to take out the 38.2% Fibonacci of the last leg down (0.6605), which could bring 0.6769 in the spotlight.

However, the upside looks unfriendly with the daily Ichimoku Cloud looming large and the rise may be reaching its limits. A rejection of the aforementioned technical levels will reaffirm the bearish bias and could lead to new 2024 lows (0.6442). The RBA believes that wage growth "is not expected to increase much further and remains consistent with the inflation target" ^[2] and markets believe that interest rates have peaked. Furthermore, the greenback may find support as markets moderated substantially their rate cut bets for the Fed.