Elias Haddad of Brown Brothers Harriman (BBH) notes that the Australian dollar is underperforming as bond yields decline following Q2 wage growth that was in line with projections. With private sector wage increases at a four-year low, Haddad contends that this result will keep the RBA on pause. Despite supportive carry and commodity exposure, he believes the risks are tilted toward a protracted pause, even if futures are still pricing a potential final raise.
As wage data cools, AUD is under pressure.
"Australian bond yields are lower, and the AUD is performing poorly overall. Australia's Q2 wage growth was in line with expectations and will not involve the RBA.
"Annual wage growth in Q2 was softer than the RBA's prediction of 3.3% and underlying private sector pay pressures were even more modest. Wages climbed 0.8% q/q for a third consecutive quarter to be 3.2% y/y vs. 3.2% in Q1."
"Public sector salary growth stayed at 3.4% y/y for a second consecutive quarter, while private sector wage growth fell to a four-year low of 3.1% y/y vs. 3.2% in Q1."
"RBA cash rate futures still suggest a 60% chance of a final 25bps increase to 4.60% by year's end. We believe that given policy is already somewhat restrictive, the risk is tilted toward a longer halt in the RBA tightening cycle."
"Still, Australia's appealing carry and the nation's strategic exposure to commodities tied to energy, AI, and military remain major AUD tailwinds."
As wage data cools, AUD is under pressure.
"Australian bond yields are lower, and the AUD is performing poorly overall. Australia's Q2 wage growth was in line with expectations and will not involve the RBA.
"Annual wage growth in Q2 was softer than the RBA's prediction of 3.3% and underlying private sector pay pressures were even more modest. Wages climbed 0.8% q/q for a third consecutive quarter to be 3.2% y/y vs. 3.2% in Q1."
"Public sector salary growth stayed at 3.4% y/y for a second consecutive quarter, while private sector wage growth fell to a four-year low of 3.1% y/y vs. 3.2% in Q1."
"RBA cash rate futures still suggest a 60% chance of a final 25bps increase to 4.60% by year's end. We believe that given policy is already somewhat restrictive, the risk is tilted toward a longer halt in the RBA tightening cycle."
"Still, Australia's appealing carry and the nation's strategic exposure to commodities tied to energy, AI, and military remain major AUD tailwinds."
