Australian Dollar: Solid carry as RBA pause risk grows – BBH

Brown Brothers Harriman’s Elias Haddad suggests that upcoming Australian wage and labour data are unlikely to influence Reserve Bank of Australia pricing, with futures only partially accounting for one more rate hike. Haddad anticipates a higher probability of an extended pause in monetary policy due to already restrictive measures, but highlights Australia’s appealing carry and commodity exposure as ongoing AUD tailwinds.

The Australian Q2 wage price index, to be released on Wednesday, and the July labor force survey, on Thursday, are not expected to alter the direction of RBA rate decisions. Wage growth is anticipated to increase by 0.8% quarter-over-quarter for the third consecutive quarter, and to decelerate to 3.2% year-over-year from 3.3% in Q1.

Meanwhile, the economy is projected to add 12,000 jobs, from the 76.3k added in June, with the unemployment rate staying unchanged at 4.4% for the third month in a row. RBA cash rate futures indicate a 60% chance of a final 25 basis points hike by year-end, bringing the rate to 4.60%. However, the risk leans towards a more prolonged pause in the RBA tightening cycle, as policy is already somewhat restrictive.

Despite this, Australia’s advantageous carry and strategic ties to commodities in energy, AI, and defense continue to be significant AUD tailwinds.