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AUD falls amid sluggish wage growth and risk off mood

Thursday 19 May, 2022

Daily Currency Update

The Australian dollar retreated through trade on Wednesday amid a correction in risk sentiment and a lacklustre domestic wage growth report. Having tested US$0.7050 on open, the AUD tracked sideways through the early part of the local session as investors sidelined major bets ahead of quarterly wage growth data. Wages growth fell well short of market estimates printing a 0.7% increase in Q1 and a 2.4% increase year on year. The softer print spooked investors and forced the AUD back below 0.70 US cents amid concerns sluggish real-world wage growth will give the RBA impetus to adopt a slower path to monetary policy normalisation. Having increased rates by 15 basis points earlier this month the RBA will be keen to see wage growth ramp higher before aggressively tightening rates. While surveys and alternate data sets do show wages are beginning to trend higher, the gap between inflation and wage growth creates a headache for the RBA in the near term. The AUD came under added pressure overnight as markets looked to haven assets amid a risk off shift. Poor earning results from major US retailers highlighted the damaging effects of higher inflation, spooking investors and prompting a sharp downturn across key equity indices. The sell off permeated currency markets with the USD, JPY and CHF all finding support. Having edged back above US$0.70 leading into the overnight session the AUD tracked toward intraday lows at US$0.6950. Our attentions turn now to local employment data. A strong read could help unwind concerns around lower wages and ensure the pressure remains on the RBA to deliver substantial rate hikes through the second half of the year.

Key Movers

Safe Haven’s carried the day with the USD, CHF and JPY all finding support amid a correction in risk sentiment. Poor US earnings results elevated fears surrounding the impact of high inflationary pressures and prompted a correction across the S&P 500 and Nasdaq. The S&P 500 closed down 4% a move that permeated currency markets and elevated the JPY and CHF by more than 0.5%, with the CHF finding added support following a rare hawkish shift from Central Bank head Thomas Jordan. While inflation remains low in Switzerland Jordan suggested policymakers were ready to act and tighten rates should inflationary pressures begin rising. With the euro on the soft side and haven support fueling demand for the USD, the dollar index edged higher on the day while the British pound was the day's worst performer. The pound gave back gains won following stronger than anticipated labour market data after CPI inflation surged to a 40-year high of 9%. Concerns Britons Purchasing power is being eroded by the rapid rise in living costs coupled with a much weaker growth outlook there is a fear the UK may be headed for recession. With only second-tier data on hand, this evening's direction will stem from the broader risk narrative.

Expected Ranges

  • AUD/USD: 0.6880 - 0.7050 ▼
  • AUD/EUR: 0.6620 - 0.6720 ▼
  • GBP/AUD: 1.7580 - 1.7880 ▼
  • AUD/NZD: 1.1020 - 1.1080 ▼
  • AUD/CAD: 0.8920 - 0.9020 ▼