Australia: Wages likely to keep RBA on the side-lines - TDS

Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, notes that Australia’s December quarter Wage Price Index (WPI) expanded by +0.5%/q and 2.3%/y, marginally weaker than expected (+0.6%/q and 2.3%/y).

Key Quotes

“While the cyclical low was 1.87%/y two years ago, the pace of improvement has been painfully glacial.”

“Nevertheless, wages are grinding higher along with the tightening labour market, improving bonus payments and favourable enterprise agreements (EA). By industry, wage growth ranges from 1.8%/y for Mining to 3.0%/y for private Healthcare.”

“The RBA expects higher wages growth in due course, but as the pace remains glacial the market and TD view that there is little risk of a movement in the cash rate this year remains intact.”

“While tape bombs have buffeted the AUD, the $US0.70-0.73 range has been respected in recent months.”

“OIS is 75% priced for a rate cut by year end, pricing that will prevail until upside data surprises hit the tapes. Tomorrow's Jan employment report (TD and mkt 5%) and Friday's RBA semi-annual testimony are next on the docket, but in our view are unlikely to move the needle at this stage.”