Australian Wage Growth Accelerates in Q1 to Keep Pressure on the RBA

It is a relatively busy start to the Wednesday session. While economic indicators from Japan and China drew interest, Australian wage growth was in the spotlight.

The Wage Price Index increased by 0.8% in Q1 versus a forecasted 0.9% rise. In Q4, the Index also increased by 0.8%. However, year-over-year, wages grew by 3.7% in Q1 versus 3.4% in Q4. Economists forecast wages to increase by 3.6%.

According to the Australian Bureau of Statistics (ABS),

• Wages grew at the highest annual rate since Q3, 2012.
• Private sector wages rose 3.8% year-over-year and 0.8% in Q1.
• Public sector wages also grew at a more marked pace in Q1, rising by 0.9%. However, public sector wages grew by a more modest 3.0% year-over-year.
• There was an uptrend in the share of jobs receiving wage rises of 4% to 6%, the highest since 2009.

Wage growth is a focal point for the RBA, which remains committed to bringing inflation to target. The pickup in wage growth offsets the effect of higher interest rates on disposable income and consumption. Significantly, the hotter-than-expected wage growth numbers would pressure the RBA to maintain a hawkish policy outlook.

According to the RBA meeting minutes, Board members see wage growth stabilizing. Contrary numbers could ignite bets on another interest rate hike before hitting the pause button.

AUD/USD Reaction to Australian Wage Growth

Ahead of the wage growth figures, the AUD/USD fell to a pre-stat low of $0.66519 before rising to a high of $0.66613.

However, in response to the wage growth numbers, the AUD/USD fell to a post-stat low of $0.66445 before rising to a high of $0.66662.

This morning, the AUD/USD was up 0.15% to $0.66646.

Next Up

Looking ahead to the US session, it is a relatively quiet day on the US economic calendar.

The US housing sector will be in the spotlight, with building permits and housing start numbers in focus.

While investors can consider the housing sector a litmus test of the US macroeconomic environment, the Fed’s focus on inflation and labor market conditions should limit the impact of the numbers on the global financial markets.

With the US economic calendar on the light side, investors should track FOMC member chatter with the media. Fed Chair Powell speaks on Friday, and some members may lay the foundations for the Powell speech.