Australian Dollar gains ground, eyes wage growth

The Australian dollar has started the week in positive territory. AUDUSD is trading at 0.6596 in the European session, up 0.41% on the day at the time of writing.

Australian Dollar recovers as markets stabilize

The Australian dollar has quickly recovered from the recent turbulence which routed global stock markets. Last Monday, the Australian dollar fell as much as 2.4% but managed to pare most of the losses. As the markets have steadied, the risk-prone Aussie has improved by 1.5%. Still, there is uneasiness in the markets and if sentiment sinks, the Australian dollar could head lower.

On Tuesday Australia releases the wage price index for the second quarter. The market estimate stands at 0.9% q/q, compared to 0.8% in the first quarter. Annually, wage growth is expected to tick lower to 4.0%, compared to 4.1% in Q1. The RBA will monitoring the data carefully, as it remains concerned about a price-wage spiral.

The Reserve Bank of Australia held rates last week at 4.35% but remained hawkish, with Governor Bullock saying that she didn’t expect a rate cut for the next six months. Bullock said that policy makers had discussed a rate hike due to concerns of “persistently high inflation”.

The RBA could become an outlier among other central banks, which have already lowered rates or like the Federal Reserve, have signaled that rate cuts are coming soon. The message that rates could go higher has boosted the Australian dollar but there would be a cost as homeowners and businesses are straining under the weight of high interest rates. If inflation does rise more than expected, we are likely to see the RBA continue to hold rates for the next several months. The markets are more dovish and have widely priced in a rate cut in December.

AUD/USD technical

• There is resistance at 0.6668 and 0.6765.

• 0.6509 and 0.6412 are the next support levels.