The AUD/USD is trading sharply lower early Wednesday. Traders are reacting to a report that showed Australian wages rose less than expected last quarter. Traders are concerned because not even an increase in the minimum wage could lift workers’ compensation across the economy.
It also could lead to a drop in consumer spending and consumer inflation. This would lead to the Reserve Bank of Australia leaving interest rates at historically low levels for longer than expected. Based on this report, investors have pushed the probability of an interest rate hike to 2019.
Early Wednesday, the Australian Bureau of Statistics showed its wage price index rose 0.5 percent in the quarter, from the second quarter, missing market forecasts of a 0.7 percent increase.
Annual wage growth moved to 2 percent, from a record low of 1.9 percent, but again fell short of the 2.2 percent forecast and a little above inflation at 1.8 percent.
In other news, a Westpac survey showed pessimists again outnumbered optimists in November as its sentiment index dropped 1.7 percent.
The NZD/USD is trading slightly lower early Wednesday, but inside yesterday’s wide range. Traders may feel that Tuesday’s sell-off may have been a little overdone. Bearish traders were reacting to disappointing Chinese economic data.
In the U.S. on Tuesday, producer inflation rose more than expected in October, boosted by a surge in the cost of services, leading to the biggest annual increase in wholesale inflation in over 5 ½ years.
According to the Labor Department, the Producer Price Index for final demand increased 0.4 percent last month after a similar gain in September. In the 12 months through October, the PPI jumped 2.8 percent, the largest increase since February 2002.
The PPI rose 2.6 percent year-on-year in September. Economists had forecast the PPI edging up to 0.1 percent last month and increasing 2.4 percent from a year ago.
The fundamental and technical pictures are both bearish. We expect the downside momentum to continue if the focus remains on the divergences between the monetary policies of the U.S. Federal Reserve and the Reserve Banks of Australia and New Zealand.
If any problems with U.S. tax reform become a bigger issue then we may see a short-covering rally but gains are likely to be limited.
There are two key reports from the U.S. to watch on Wednesday, consumer inflation and retail sales.
The U.S. Consumer Price Index is expected to come in up 0.1%. The Core CPI is expected to show a rise of 0.2%. Core Retail Sales are expected to show an increase of 0.2% and Retail Sales are expected to show no gain.
This article was originally posted on FX Empire
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