Australian Dollar: RBA seen sidelined on softer wages – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad reports the Australian Dollar is underperforming as bond yields fall after Q2 wage growth matched expectations. Haddad argues this outcome will keep the RBA on hold, with private sector wage gains at a four‑year low. Futures still price a possible final hike, but he sees risks skewed toward an extended pause despite supportive carry and commodity exposure.

AUD pressured as wage data cools

"AUD is underperforming across the board, and Australian bond yields are lower. Australia Q2 wage growth matched consensus and will keep the RBA sidelined."

"Wages rose 0.8% q/q for a third straight quarter to be 3.2% y/y vs. 3.2% in Q1. Annual wage growth in Q2 was softer than the RBA’s projection of 3.3% and underlying private sector pay pressures were even more subdued."

"Private sector wages growth eased to a four-year low at 3.1% y/y vs. 3.2% in Q1, while public sector wages growth held at 3.4% y/y for a second straight quarter."

"RBA cash rate futures continue to imply 60% odds of one final 25bps hike by year end to 4.60%. In our view, the risk is skewed towards a more extended pause in the RBA tightening cycle because policy is already somewhat restrictive."

"Still, Australia’s attractive carry alongside the country’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)