AUD/USD marginally higher after robust run of sentiment and wage data

• AUD/USD stays in positive territory after Australian data indicates economy remains strong. 
• Australian business and consumer sentiment remain elevated and wage rises continue apace. 
• The data suggests the Reserve Bank of Australia will keep interest rates high until 2025, supporting AUD.  

AUD/USD is trading marginally higher on Tuesday, exchanging hands in the 0.6590s during the European session. The pair has seen gains following the release of a slew of Australian economic sentiment and employment data during the Asian session. 

The data which included the Westpac-Melbourne Institute Consumer Sentiment Index and the NAB Business Confidence Index showed confidence remaining robust with families and businesses overall optimistic about the outlook. 

The Westpac-Melbourne index showed that the “family finances vs a year ago” sub-index surged 11.7% to a two-year top of 70.9 and Matthew Hassan, Senior Economist at Westpac commented “Consumers breathed a small sigh of relief."

The NAB confidence data showed an improvement in the employment situation. 

“We were concerned about the sharp decline in the employment index, but it jumped back to an above-average level this month, suggesting the robust jobs growth is continuing for now," said NAB Chief Economist Alan Oster.

The Australian Wage Price Index data meanwhile showed a marginal slowdown to 0.8% on a QoQ when it had been expected to remain at 0.9%. It held steady at 4.1% YoY, however. The stubborn wage inflation was mainly put down to the effect of new regulations coming into force protecting public-sector worker pay. 

"By contrast, private-sector wages rose by 0.7% q/q in Q2, marking a slowdown from the 0.9% rise in Q1,” says Abhijit Surya, Australia and New Zealand Economist, for Capital Economics. 

“With job mobility easing, the slowdown in private-sector wage growth should continue apace,” she added.

Yet despite the slow decline in wages, Capital’s pessimism around the outlook for “productivity growth” means it sees the RBA erring on the side of caution and holding off on cutting rates until Q2 2025. This gives the Australian Dollar a strong foundation across pairs. 

The US Dollar (USD), meanwhile, is edging higher according to the US Dollar Index (DXY) ahead of key inflation data from the US in the form of the Producer Price Index (PPI) for July. The PPI is a measure of “factory-gate” wholesale price inflation. If higher-than-expected it might be expected to filter through into higher prices in shops. This, in turn, could keep interest rates elevated in the US. 

The data, along with Consumer Price Index data on Wednesday will provide greater clarity on inflationary forces in the economy and therefore the future trajectory of interest The Federal Reserve (Fed) is currently expected to cut interest rates by either 0.25% to or 0.50% (to 5.25% or 5.00% respectively) in September, however, the PPI and CPI may modify those expectations.