AUD/USD: Aussie trades flat as commodities slide and RBA warns of weak wage growth

  • The AUD is trading little changed on Tuesday as key commodity prices fall.
  • The RBA Deputy Governor Ellis warns of weak wage growth and high leverage level.
  • The US Dollar is falling across the board as 10-year Treasury yields fell off 4-year high. 
  • AUD awaits key employment report due this Thursday. 

AUD/USD is trading flat around 0.7850, in early New York session, as the US Dollar is lower across the board on benchmark Treasury yields falling lower. The key commodities fell on Tuesday adding slight pinch of salt on Australian Dollar. The AUD/USD lost some 0.30% on Monday on dovish jawboning by ther RBA Deputy Governor Lucy Ellis. In a spech late on MKonday Ellis said that weak income growth in Australia is very risky given high level of household debt, although remained a bit more confident about gradual pick up in wages and inflation. She also noted that weak wage and inflation growth  is a structural issue and thus there may not be any immediate pick up and in that scenario, household consumption could slow down in the days ahead.

Ellis also commented that cash (repo) rate and bank rates do not have to move together and there is no such law in RBA domain. Thus, RBA may be in neutral mode, but banks are free to raise their lending rates if they feel so as par prevailing bond market conditions in a free market economy. Higher mortgage rates may also ensure less bubble in the AU housing market, for which RBA is also very much concerned. Thus AUD/USD is in pressure today as RBA may be in neutral mode till late 2018 for lack of AU wage growth & inflation.

On economic data front, Australian NAB business confidence came as upbeat today at 12 for January compared to market estimate  of 10, but failed to support AUD on persistant basis. All eyes are now on Australian employment data due Thursday.