With stock markets enjoying their biggest weekly gain since December 2011, volatility lower and gold up more than $30 from its recent low, many of the conditions were in place for a rally in the AUD last week. With the US Dollar hitting a fresh 3-year low against a basket of major currencies, AUD/USD ended the week more than a cent higher at 0.7910, having at one point on Friday morning reached a 2-week best of 0.7985.
Last week’s Australian labour force figures did nothing to boost investor appetite for the AUD. Employment increased 16,000 on the month but seasonally adjusted monthly hours worked in all jobs decreased by 24.1 million hours (or 1.4%) between December 2017 and January 2018 to 1,708.2 million hours. This follows a decrease of 8.6 million hours (or 0.5%) from November to December 2017. The average number of hours worked per employee per week fell to a new record low of 31.7. Employees are on average working 2.7% fewer hours than a year ago and that will limit the boost to household incomes from rising employment. RBA Assistant Governor Luci Ellis last week noted, “Australia has had especially strong employment growth over the past year - more than double the rate of growth in the working-age population… But that hasn’t translated into strong consumption growth. Household income growth has been weak for a number of years, and that has weighed on consumption growth.”
As the RBA has made very clear that it is watching wages and aggregate household incomes, then investors around the world are going to be doing exactly the same thing. On Wednesday this week the Australian Bureau of Statistics releases its quarterly wage price index, as it has done every three months since September 1997. The last set of numbers in November showed a +0.5% q/q increase to leave the annual rate at 2.0%; well-below its long-run average around 3¼%. Consensus looks for a similar pace of growth in these Q1 numbers and the read-across to the currency from the data should be pretty straightforward: stronger numbers = stronger AUD and, of course, vice-versa. The Australian Dollar opens in Asia this Monday having closed in New York at USD0.7910, with AUD/NZD at 1.0705 and GBP/AUD1.7750. Within the Asian time zone, Chinese markets remain closed until Wednesday for the Lunar New Year holidays.