Aussie dips after soft wage data

OANDA:AUDUSD   Australian Dollar / U.S. Dollar
The Australian dollar has extended its losses on Wednesday. In North American trade, AUD/USD is trading at 0.6824, down 0.47%.

Australian wage growth was short of the forecast, with a gain of 0.8% q/q in Q4 2020. This was down from 1.1% in Q3 and below the forecast of 1.0%. Annual wage growth rose to 3.3%, up from 3.2% but below the estimate of 3.5%. This will be welcome news to the RBA, which is concerned that high inflation could lead to a price-wage spiral that would entrench inflation expectations and complicate efforts to curb inflation.

The RBA has hiked interest rates by 325 basis points in the current cycle but the battle against inflation rages on. Inflation rose to 7.8% in Q4 2022, its highest level since March 1990. The central bank's steep tightening is yet to curb inflation, and Lowe faced criticism of his rate policy when he appeared before a parliamentary committee last week. Lowe told the lawmakers that high inflation was "dangerous" and reiterated that future rate moves would be data-driven. The cash rate is currently at 3.35% and the markets have priced a peak rate of 4.1%. The RBA has signalled that more rate hikes are coming and we're likely to see a 25-basis point hike for a fifth straight time at the March meeting, barring some unexpected data.

All eyes are on the Federal Reserve, which will release the minutes of its February meeting later on Wednesday. The Fed raised rates by 25 bp, but investors will be interested in the extent of support for a 50-bp hike at the meeting as a clue what to expect from the March 22 meeting. It was only a few weeks ago that the markets were confident that the March meeting would provide a 'one and done' rate increase and the Fed would cut rates late in the year. The blowout employment report, a strong retail sales release and higher-than-expected inflation have changed that narrative. The markets have moved closer to the Fed's hawkish stance, and Goldman Sachs and the Bank of America are projecting three more rate hikes in 2023.

AUD/USD has support at 0.6784 and 0.6690

There is resistance at 0.6907 and 0.7001


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