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

Brown Brothers Harriman’s (BBH) Elias Haddad argues that upcoming Australian wage and labour data are unlikely to shift Reserve Bank of Australia pricing, with futures only partly discounting one final hike. Haddad sees risks skewed toward a longer pause given already restrictive policy, but notes Australia’s attractive carry and commodity exposure as ongoing Australian Dollar (AUD) tailwinds.

Data steady, carry and commodities supportive

"Australia Q2 wage price index (Wednesday) and July labor force survey (Thursday) are unlikely to shift the dial on RBA rate pricing. Wages are expected to rise 0.8% q/q for a third straight quarter and dip to 3.2% y/y vs. 3.3% in Q1."

"Meanwhile, the economy is forecast to add +12k jobs vs. +76.3k in June and the unemployment rate is seen unchanged at 4.4% for a third straight month."

"RBA cash rate futures 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."