AUD/USD Rises On Strong Capital Spending

Republished By Plato

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The Australian dollar has rebounded on Thursday, after a 2-day slide in which AUD/USD lost 100 points. In European trade, AUD/USD is trading at 0.6830, up 0.37%. On Wednesday, the Australian dollar fell to 0.6794, its lowest level since Jan. 6.

Australian Capex rebounds in Q4

Australia’s private capital expenditure jumped 2.2% q/q in Q4 2022, rebounding from 0.6% in Q3 and above the estimate of 1.3%. Building capex sparkled with a 3.6% gain, after declining by 1.6% in the third quarter. The strong numbers have pushed the Aussie higher on Thursday.

The capex release comes on the heels of wage growth, which slowed to 0.8% q/q in Q4 2022. This was lower than the 1.1% gain and the estimate of 1.0%. On an annualized basis, wage growth edged up to 3.3%, up from 3.2% but lower than the estimate of 3.5%. The RBA is keeping a close eye on wage growth, concerned that stubbornly high inflation could trigger a price-wage spiral that would entrench inflation expectations and complicate efforts to curb inflation.

FOMC minutes signal more rate hikes

The FOMC minutes reiterated what we’ve been hearing from Powell & Co. for months. FOMC members said there were signs that inflation was heading lower but more rate hikes were needed to bring inflation back to the 2% target. The minutes noted that the labour market remains robust, which is contributing to continuing upward pressures on wages and prices.” It should be noted that the minutes are somewhat stale, given the blowout employment report and the jump in retail sales which were released after the February meeting. These releases point to a surprisingly resilient US economy and could mean that members will become even more hawkish.

An important takeaway is that although the vote to hike by 0.25% was unanimous, two members (Bullard and Mester) saw a case for a 0.50% increase. The markets widely expect another 0.25% hike in March, but the host of unexpectedly strong releases in recent weeks has raised the likelihood of a 0.50% move. We can expect market pricing to continue to shift as the US releases key data in the coming weeks ahead of the Mar. 22 meeting.

AUD/USD Technical

AUD/USD has support at 0.6784 and 0.6690
There is resistance at 0.6907 and 0.7001

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.