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AUD/USD: Wage Growth Crucial for the RBA
Following the RBA’s February 18 rate cut, wage growth trends will be crucial in determining the central bank’s future policy stance and AUD/USD trajectory. Economists forecast wage growth to ease to 3.2% year-on-year in Q4 2024, down from 3.5% in Q3 2024.
Softer wage growth could impact household spending, potentially dampening demand-driven inflationary pressures. A softer inflation outlook would raise bets on another RBA rate cut, dragging the AUD/USD pair below $0.63. Conversely, stronger wage growth may keep the RBA on hold, potentially driving the pair toward $0.64.
On February 18, RBA Governor Michele Bullock highlighted the influence of wage growth on monetary policy, stating:
“A slowdown in wage growth, disinflation in market services, a sustained decline in housing costs, and a partial recovery in supply-side conditions could support another rate cut.”
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Australian Dollar Daily Chart
Heading into the US session, softer-than-expected US housing sector data could support an H1 2025 Fed rate cut. A narrowing of the US-Aussie interest rate differential in favor of the Aussie dollar may drive the AUD/USD pair toward $0.64.
Conversely, rising building permits and housing starts could widen the rate differential, potentially pulling the pair below $0.63.
Beyond the data, US tariff developments also require consideration. The threat of sweeping US tariffs could impact the Aussie economy and Aussie dollar demand as Australia has a trade-to-GDP ratio above 50% and has one-third of exports bound for China.