Australian Economy Under Strain as US Dollar Declines

Australian wages experienced a historic surge in the last quarter, recording the largest increase on record. This growth was primarily driven by a significant rise in minimum wages, benefiting millions of workers. Intense competition among employers also contributed to increased individual pay deals. Despite the wage growth, the market remains skeptical about the possibility of an interest rate hike.

The wage price index, as reported by the Australian Bureau of Statistics, rose by 1.3% in the September quarter, aligning with expectations and marking the largest quarterly increase in the series' 26-year history. However, the Reserve Bank of Australia (RBA) anticipates a cooling of the competition for workers and expects wage growth to ease in 2024.

While wage growth has surged, concerns arise from the sharp increase in labor costs, partly due to increased hours worked and a slowdown in productivity. Policymakers stress the need for productivity recovery to prevent prolonged higher inflation and interest rates.

Inflation in Australia has proven more persistent than initially expected, with the services sector exerting price pressures. The RBA raised interest rates to 4.35% in response to stubborn inflation, projecting a decrease in inflation to 4.5% from a peak of 5.4% in September by year-end and aiming to reach the target range of 2%-3% by late 2025.

Despite economic resilience driven by strong public and business investment, a rebound in international students and tourists, and a surge in interest income for asset-rich households, the outlook suggests that economic growth is anticipated to remain below the usual trend in the coming year.

UBS predicts a GDP slowdown to 1.6% in 2024, with rising unemployment forecasted. The upcoming federal election in 2025 introduces uncertainties, including minimal interest rate relief, a prosperous boomer generation, and challenges for younger households.

In October, Australian business conditions remained resilient despite a slight dip in confidence. However, consumer sentiment in Australia took a hit in early November, following an interest rate hike by the Reserve Bank, raising concerns about heightened living costs. This has implications for the retail-heavy holiday season, with 40% of respondents planning to spend less on gifts. The RBA's forecast of a cooling job market and broader business activity could further dampen consumer confidence as the year concludes.

Meanwhile, diplomatic relations between Australia and China show signs of improvement, with the possibility of China lifting its remaining trade blocks next month after Prime Minister Anthony Albanese's visit to Beijing.

In global economic dynamics, the U.S. dollar fell over 1% against major currencies as October's consumer price data revealed a further slowdown in inflation. The 12-month period through October showed a 3.2% increase in the consumer price index, down from September's 3.7%. The dollar's immediate decline and a drop in Treasury yields followed the release, with the benchmark 10-year falling below 4.5%. Futures markets now indicate a more than 68% probability of a 25 basis point or more cut in the Fed's overnight lending rate by May, according to the CME's FedWatch tool. Hence, anticipations suggest that the Australian dollar will experience fluctuations within the upper range, facing reduced pressure during this timeframe. However, it is projected to persistently exhibit a weaker trend compared to the US dollar in the medium term, given the substantial disparities in their rates of return.

Data for Technical Analysis (5H) CFD AUD/USD

Resistance : 0.6507, 0.6513, 0.6524

Support : 0.6487, 0.6481, 0.6470

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 0.6477 - 0.6487 is touched, but the support at 0.6487 cannot be broken, the TP may be set around 0.6508 and the SL around 0.6472, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6507 - 0.6517, TP may be set around 0.6530 and SL around 0.6482, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6507 - 0.6517 is touched, but the resistance at 0.6507 cannot be broken, the TP may be set around 0.6481 and the SL around 0.6522, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6477 - 0.6487, TP may be set around 0.6460 and SL around 0.6512, or up to the risk appetite.       

Pivot Points Nov 15, 2023 03:28AM GMT

Sources: Investing 1, Investing 2