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- Australian policymakers are shifting the focus from wage growth to inflation.
- Developments around the Russian-Ukrainian crisis will likely set the market’s tone.
- AUD/USD is technically bullish and could extend its recovery beyond 0.7300.
Australia will release its February employment report early on Thursday and is expected to announce it has added 37K new job positions in the month. The Unemployment rate is foreseen down to 4.1% from 4.2% in January, while the Participation Rate is expected to have increased from 66.2% to 66.3%.
The country reports wage growth on a quarterly basis, and according to the latest available data, the Wage Price Index was up 0.7% QoQ in the last quarter of 2021 and by 2.3% over the year, matching the pre-pandemic annual growth. The encouraging reading, however, fell short of reaching the 3% target that policymakers believe would be enough to trigger a rate hike.
RBA concerned about inflation
The Reserve Bank of Australia has been leaning towards a more hawkish stance, however, and wage growth is slowly losing its relevance in terms of monetary policy. The central bank has maintained its patient stance in its early March meeting – although adding that inflationary pressures may rise amid surging commodity prices after Russia invaded Ukraine. Governor Philip Lowe suggested that a rate hike could come before the year-end should the Eastern Europe crisis fuels inflation.
The Australian Consumer Price Index rose 1.3% in Q4 2021, reaching 3.5% YoY, above the medium-term range and central bank’s target of 2-3%.
Given that the local economy is showing signs of robust growth, an encouraging employment report could provide only temporary support to the AUD, while a miss in the headline could spur some selling of the commodity-linked currency. At the end of the day, the AUD direction will depend on how market players are positioned for risk.
AUD/USD possible scenarios
The AUD/USD pair is in recovery mode after bottoming for the week at 0.7164. The ongoing advance has to do with news indicating that Moscow believes that a neutral Ukraine is a possible option for a diplomatic solution. The market’s optimism underpins the pair, and will likely maintain it on the bullish side, as long as speculative interest believes there is an end to the Russia-Ukraine crisis.
From a technical point of view, the AUD/USD is bullish. The daily chart shows that technical indicators bounced sharply from around their midlines and that the pair recovered above its 100 SMA. It would need to recover above the 20 SMA, currently at around 0.7250, to confirm a bullish continuation in the upcoming sessions towards the 0.7300/30 price zone. Beyond the latter, the rally could continue towards 0.7370.
If the aforementioned weekly low gives up, the pair could extend its slide initially to 0.7100, particularly if the market’s mood takes a turn for the worst.
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