Australian dollar dips after WPI

After three successive winning sessions, the Australian dollar has reversed directions on Wednesday. In the European session, AUD/USD is trading slightly above the symbolic 70 level.

Wage growth ticks higher

It wasn’t all that long ago that RBA Governor Lowe would reiterate that there would be no rate hikes until wage growth hit 3%. The rationale was that strong wage growth would indicate that higher inflation was not transient. Well, the “T” word has gone out of fashion, after being unceremoniously retired by Fed Chair Powell. The RBA finds itself facing spiralling inflation, and raised rates for the first time in a decade, even though wage growth remained below 3%. Lowe has been forced to adjust his stance and is now focusing on the fact that wage inflation is moving higher.

The wage price index release for Q1 ticked up to 2.4% YoY, up marginally from 2.3%. This is less than half of CPI, which stands at 5.1%. Still, this won’t stand in the way of an RBA hike at the June meeting, as the central bank is determined to stamp out soaring inflation. The RBA will likely deliver a 0.25% hike, barring spectacular employment data on Thursday. If that occurs, the likelihood of a 40-bps hike would increase.

The Australian dollar’s impressive upswing has paused after some hawkish rhetoric from the US Fed overnight. Jerome Powell said that interest rates could rise above the terminal rate of about 3.50% in order to contain inflation. Former Fed Chair Bernanke said in an interview that the Fed erred in waiting too long in responding to inflation. Bernanke warned that he expected to see stagflation in the next year or two, with lower growth, high inflation and an increase in unemployment.

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AUD/USD Technical

  • There is resistance at 0.7064 and 0.7189
  • There is support at 0.6946 and 0.6821

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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