HomeContributorsFundamental AnalysisAussie Under Pressure Ahead of Wage Growth Release

Aussie Under Pressure Ahead of Wage Growth Release

  • Australian dollar extends losses
  • Australia’s wage growth expected to rise
  • Chinese Industrial Production projected to remain unchanged

The Australian dollar started the week by dropping 50 basis points but has recovered most of these losses. In the European session, AUD/USD is trading at 0.6488, down 0.12%.

It has been a rough ride lately for the Australian dollar. The currency fell 1.17% against the US dollar last week and has plunged 3.39% in the month of August.

Australian wage growth expected to remain high

Australia’s inflation rate remains elevated at 6%. The RBA has aggressively tightened rates, but high wage growth, courtesy of a tight labour market and high inflation, remains a key driver of inflationary pressures. Wage growth accelerated to 3.7% q/q in the first quarter, up from 3.3%, the highest level since the third quarter of 2012. The consensus for the second quarter stands at 3.7%. On a monthly basis, wage growth is expected to rise 0.9%, higher than the Q2 reading of 0.8%.

A strong wage price index reading will make the Reserve Bank of Australia’s fight against inflation that much more difficult. The RBA expects inflation to fall slowly, with a forecast of 3.25% by the end of next year and falling to the 2%-3% target only in late 2025.

The RBA will release the minutes of the August meeting on Tuesday. Market expectations were split ahead of the meeting as to whether the RBA would pause for a second straight month or hold rates at 4.10%. In the end, policy makers went for a pause but added that further tightening could be required, depending on the data. Tuesday’s minutes may provide some insights into the decision to pause. RBA Governor Lowe said on Friday that the central bank was leaving the door open for further tightening but only expected to make “small adjustments to calibrate policy”.

China’s economic slowdown could spell trouble for Australia’s economy and the ailing Australian dollar. China’s exports and imports are down and the country is experiencing deflation. We’ll get a look at Chinese Industrial Production on Tuesday, with a consensus estimate of 4.4% for July, unchanged from June.

AUD/USD Technical

  • There is resistance at 0.6607 and 0.6700
  • 0.6475 and 0.6382 are providing support

MarketPulse is a forex, commodities, and global indices research, analysis, and news site providing timely and accurate information on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors. This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Featured Analysis

Learn Forex Trading