Australian dollar uncertainty over wage growth, unemployment

Financial and commodity markets analytics

In his speech at a conference in Sydney today deputy governor of the Reserve Bank of Australia Philip Lowe noted that wage growth in Australia remains slack, raising concerns amongst the Australian population about losing their jobs,

“One other change to the global monetary transmission mechanism that has echoes in Australia is the behavior of wages. As in many other countries, wage growth in Australia has been quite subdued and lower than would be suggested by most of our standard models,” he told the conference

“Increased job uncertainty is likely to be one of the factors here, with consumer surveys showing high levels of concern about future unemployment”. He also added.

Inflation in Australia is drifting below the central bank’s target rate with the governor mentioning that lower wages were a prime reason behind the trend,

“This low level of wage growth is contributing to quite low rates of inflation in a range of service industries”.

On the topic of the Australian dollar, the Mr. Lowe noted that the currency is still overvalued with external forces playing a big role,

“The scale of global monetary stimulus means that our exchange rate remains relatively high given the state of our overall economy,” he said

“The end result here is that global developments have left us with a higher exchange rate and lower interest rates than would otherwise have been the case. We may not like this configuration, but developments abroad give us little choice.”

The Australian Bureau of Statistics reported today that retail sales increased by 0.4% last month to $23.88 billion significantly higher than the 0.2% last month.

The number is a good sign and there should be more good news to come concerning the retail sector noted Deutsche Bank chief economist Adam Boyton,

"Looking ahead, we think there is a reasonable prospect of a lift in the retail sector, especially given lower petrol prices, lower interest rates and signs of renewed strength in the housing market." He said


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