AUD struggles despite wage price growth

Price action in the FX space was relatively subdued in US trade. After a big move higher in Asia yesterday, USD/JPY has retreated from highs in the 102.75 region and is currently testing 102.20. 

Meanwhile the AUD is struggling despite Q4 wage price data for Australia coming in relatively in-line with consensus. The market was expecting a quarter-on-quarter rise of 0.6% and the official reading came in at 0.7%. On year the overall figure was 2.6%, while the market was anticipating 2.5%. Many analysts were expecting to see downward pressure to the figures due to the recent weakness in labour market conditions. Traders seem to have a short bias on the pair at the moment, particularly after yesterday’s retest of the January highs.

The 0.908 level is the 38.2% retracement of the sell-off from October 2013, when AUD/USD was trading above 0.97, to the end of January 2014 low, when it traded below 0.87. The pair has struggled since failing at that level and even dipped below 0.90 today to a low of 0.899. While there is no more local data to look out for this week, China’s HSBC flash manufacturing PMI tomorrow could cause some volatility. For now I suspect the pair will remain choppy around the 0.90 level.

Cable in focus ahead of data dump

GBP/USD slipped below 1.67 after CPI data came in mildly below consensus. Yesterday I had mentioned that some analysts are concerned we might see a slight easing in headline inflation. This materialised as the reading came in at 1.9%, while the market was expecting it to remain steady at 2%. The bulls will be hoping to re-initiate fresh longs at 1.6603 (the 38.2% retracement of the 1.6252 to 1.6823 rally). In UK trade (20:30 AEST) we get the latest employment change and unemployment rate, although this metric is slightly less important these days for sterling given the BoE new guidance.

Any signs of improvement in the labour market will help neutralise the negative impact of the disappointing CPI reading. On the USD side of the equation, we get Fed members Dennis Lockhart (04:15 AEDT) and Jamie Bullard (05:00 AEDT), while the Fed minutes are released at 06:00 AEDT. We also have building permits, PPI and housing starts due out. It’s all about tapering at the moment and any comments around that have the potential to move FX markets.

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