Australia: Rates, wages and the AUD in focus - ANZ

Research Team at ANZ, suggests that part of the recent improvement in the fair value of the AUD has been driven by a reassessment of the likelihood of any further easing from the RBA.

Key Quotes

“In fact, in recent days, expectations for the RBA have been driven towards a hike − December 2017 is now priced slightly above cash, as is much of 2018.”

“While the first portion of this move back to neutral was driven by an improvement in the data and a shift in the RBA’s rhetoric, the extension of the move (above the level of the cash rate) was more related to global factors.”

“As the market has become increasingly excited about the prospects of a reflationary Trump presidency, the AUD curve has risen in line with global rates. We think that this move is close to its peak, and from here we believe any further gains in offshore front end yields will have a limited impact on Australia.”

“The Q3 wages report released last week highlights why. There we once again saw a softening in wages and evidence that wages are troughing – a key focus for the RBA – remained scant.”

“This weakness in wages continues to be driven by the considerable spare capacity in the labour market with the labour underutilisation rate (unemployment plus underemployment) remaining high compared with history. This spare capacity will keep the RBA on the sidelines and should mean that any topside in the AUD remains very limited.”