The recent Wage Price Index (WPI) report for the first quarter of 2024 brought some relief to the Reserve Bank of Australia (RBA) as wage growth slowed. The index rose by 0.8% compared to the previous quarter's 0.9%, and year-over-year pay gains softened to 4.1%, slightly above the RBA's target range. This deceleration suggests that wage gains have peaked and are likely to ease further as hiring demand weakens and unemployment rises. The RBA will likely wait for more signs of wage and labor market softening before considering rate cuts, as the labor market dynamics shift in favor of employers, leading to moderated wage increases.
Economic outlook for Australia is further influenced by external factors, particularly developments in China. Recent reports of China considering a proposal for local governments to purchase unsold homes have positively impacted the AUD. The AUDUSD saw a modest rise as market sentiment improved on the back of potential stability in China's property market. The RBA's recent policy stance has been less hawkish than anticipated, contributing to a weaker Australian dollar. Despite rising inflation pressures, the RBA has opted to maintain its current policy rate, suggesting a cautious approach in response to mixed economic signals. The central bank's projections indicate that inflation is expected to decline more slowly than previously thought, with a return to the target range not expected until 2026.
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Despite signals of weakening inflationary pressure from the labor market following today's WPI report, the Australian dollar is strengthening, driven by news from China. Furthermore, the uncertain macroeconomic situation in Australia forces the RBA to maintain a restrictive monetary policy. Currently, markets are pricing in no rate cuts this year, with the possibility of the first rate cuts potentially appearing in 2025.
Source: xStation 5
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