AUD/USD was ending the day higher by some 0.3% and had moved between a low of 0.7145 and a high 0.7223. The central banks were in focus again and both the BoE and ECB turned more hawkish overnight. Nevertheless, equities saw the glass as half full and sold off which hurt the higher beta currencies, such as AUD.
The Aussie pair was dropping throughout the New York session until the final hours where it met a key technical support area and started to correct, as illustrated in the technical analysis below. The US dollar was also making a comeback which did not help the commodity as traders began to question the reaction to the Federal Reserve, putting it down to holiday irregular markets and profit-taking.
Inflation is increasing globally, but in Australia it is of a different order according to the Reserve Bank of Australia (RBA). The Labor market scarcity and “significant” wage growth have yet to appear before higher inflation is considered sustainable
There is still significant slack in the Australian labor market, but this is expected to vanish in the coming months. Increasing recruitment activity and job vacancies can lead to higher wages in the short term.
The lifting of border restrictions would relieve some of the pressure on the domestic labor market, but at the same time reduces the likelihood of significant wage growth ahead. In addition, international competition, and fundamental shifts in employment due to the pandemic could further erode wage growth
As such, we believe it will take at least a year before the required condition of “significant” wage growth set by the RBA is met
The expected trading range for today is between 0.7100 support and 0.7205 resistance with a bearish outlook.
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