The Australian Dollar Tries to Hold Current Levels

[Ben Graham]

The Australian wage index in the third quarter remained stable at 3.4% year-on-year, continuing to outpace inflation. Real annual wages have grown for eight consecutive quarters, representing a clear pro-inflationary factor as purchasing power increases.

Deputy Governor of the Reserve Bank of Australia, Hauser, made hawkish comments on Monday that essentially confirmed the RBA's position expressed at the November meeting. He stated that the data reflecting the forecasts for the November RBA meeting may not necessarily be sufficient for further easing, noting that "financial conditions are clearly closer to neutral than we thought some time ago," and that high capacity utilization (exceeding long-term averages in 5 of 8 sectors of the economy) means that economic growth may be constrained due to a lack of capacity—not due to monetary policy and for reasons unrelated to the RBA.

The unemployment rate fell to 4.3% in October amid rising employment, indicating that the labor market has stabilized. With an increase in housing and consumer lending activity, Hauser's conclusion is evident: monetary policy may no longer be considered restrictive. The market may interpret the RBA's signals as indicating a slowdown in the pace of rate cuts, which is a bullish signal.

The U.S. consumer inflation index for September elicited a strong market reaction. Non-farm payrolls in September rose by 119,000, significantly exceeding the forecast of 50,000. However, weak data from July and August were revised downward by 33,000, almost offsetting the September increase. The report is viewed as positive by markets, reducing the likelihood of a Federal Reserve rate cut in December, which would typically support dollar strengthening; however, the market's initial reaction was the opposite. It is possible that the market was anticipating an even stronger report after the disappointing summer figures and was thus unwinding inflated expectations. Overall, the report should contribute to the strengthening of the U.S. dollar, including against the Australian dollar.

The projected price remains below the long-term average, and although the downward momentum has weakened, there are currently no signs of an upward reversal.

The Australian dollar is one of the few currencies successfully resisting the strengthening of the dollar. In previous analyses, we noted that the threat of renewed inflation growth alongside the economic recovery allowed the RBA to avoid lowering rates in October. Hauser's hawkish comments and positive economic data provide grounds to expect that AUD/USD will attempt to rise slightly, but only if the market does not revise its forecasts for Fed rates.

We believe that the time for a reversal has not yet come. Any potential growth is limited by resistance at 0.6530/50, and we expect a resumption of the decline towards 0.6410/40.

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