AUD/USD Forecast: Labour data may force RBA rate rethink

• WPI expected to show steady wage growth
• Labour Force Survey seen driving market reaction
• RBA continues to flag labour tightness
• RBA March hike risks remain lightly priced
• AUD/USD bullish trend intact near resistance

Summary

Markets see limited urgency for additional RBA tightening near term, but incoming wages and employment data may challenge that view. The RBA continues to describe labour market conditions as tight, while unit labour costs remain elevated. Should the data reinforce that assessment, expectations for March meeting skip may need another rethink.

Labour market report card due

Today’s focus will be on Australia's Wage Price Index. Quarterly growth of 0.8% is expected, an outcome that would leave the annual pace unchanged at 3.4%, assuming no meaningful revisions.

Historically, this release has a strong track record of landing close to consensus, meaning it rarely generates sustained market reactions. On that basis, it may prove to be a nothingburger. However, with uncertainty lingering over whether we’re at the start of a policy recalibration or a tightening cycle from the RBA, any surprise could deliver ripple effects across Australian markets far larger than usual.

The private sector component will warrant most attention. It underwhelmed in the September quarter, rising 0.7% and leaving annual growth at 3.2%, notably trailing the public sector by six tenths. Whether that softness persists or begins to reverse will offer useful insight into underlying economic momentum.

At face value, wages growth around 3.4%, alongside reasonable productivity gains, would be broadly consistent with the RBA returning inflation to its 2.5% midpoint over time. The complication, as has been the case for some time, is Australia’s weak productivity performance, particularly within the public sector.

Source: TradingView

Thursday’s Labour Force Survey is undeniably the more important of the two releases. Unemployment is expected to partially reverse December’s stunning decline, lifting a tenth to 4.2%. That remains the key number to watch.

Participation is seen edging higher to 66.8%, although the broader trend has been drifting lower for some time. Should that persist, it would help keep unemployment relatively steady even if employment growth continues to soften, as recent data have suggested.

Employment is forecast to increase by 20,000, a notable step down from December’s outsized 65,200 gain. The split between full-time and part-time hiring, while often attracting attention, tends to behave like a random number generator and frequently reverses prior moves. It rarely carries strong policy signal.

Realistically, the focus remains squarely on unemployment. Beyond that, the RBA will also be monitoring broader measures of labour demand, including hours worked, underemployment and underutilisation, along with trends in youth unemployment which often respond more quickly to shifts in underlying economic momentum.

These releases take on added significance when viewed alongside the RBA’s latest assessment of labour market conditions and wage dynamics outlined in the February minutes.

RBA takeaways

The minutes made clear that board members remain relatively comfortable with the current state of Australia's labour market. Conditions were again described as “a little tighter than consistent with full employment”, language that implicitly acknowledges the risk that wage pressures may prove firmer than otherwise.

That assessment was reinforced by its broader characterisation of the labour market. Measures of unemployment and underemployment were seen as broadly steady, while the labour market is forecast to remain “a little tight in the near term”. Wages signals aligned with that narrative. Wages growth was seen as slowing only gradually, while unit labour costs growth remained high, underscoring the view that labour-related inflation pressures have not eased decisively.

Against that backdrop, a wages print in line with forecasts and no meaningful reversal of December’s employment strength would leave March very live for a follow-up hike. That combination would likely support the Australian dollar while weighing on short-dated Australian bonds and equities.

Rate pricing reality check?

Source: Bloomberg

Market pricing continues to lean towards patience rather than urgency from the RBA. Implied probabilities from swaps suggest a 25 basis point hike in March is viewed as a remote possibility at around 10%, with May seen as the next genuinely live meeting, carrying roughly a two-in-three chance of a move. That profile likely reflects the RBA’s preference for adjusting policy after updated quarterly trimmed mean inflation data. 

Even so, the pricing looks conservative. Momentum across cyclical parts of the economy has shown few convincing signs of fatigue, raising questions as to why only one full hike is priced by August.

Recent data have made it clear that Australia continues to grapple with an inflation problem. The RBA’s own forecasts last month implicitly suggested at least two additional hikes would likely be required to guide trimmed mean inflation back towards target. Therefore, should incoming data again surprise on the firm side, the risk is that the RBA moves earlier than markets currently anticipate.

Global crosswinds stir

Although Australian data and RBA pricing remain the focus near-term, offshore factors look set to dominate later in the week.

Attention may shift to the United States where the data flow begins to accelerate towards the weekend. Several potentially market-moving releases are scheduled, including the core PCE deflator, income and consumption data for December, and the advance estimate of Q4 GDP. Markets may also be alert to a possible ruling from the US Supreme Court on the legality of Donald Trump’s reciprocal tariffs. More details can be found here.

AUD/USD technical picture

Source: TradingView

On the daily chart, AUD/USD remains in a bullish trend, although RSI (14) and MACD are flashing early warning signals that upside momentum may be gradually fading. This is not a bearish signal, but it does suggest gains may be harder won from current levels.

In terms of levels to watch, the pair has attracted bids on dips below .7050 in two of the past three sessions, placing that level firmly on the radar. Beneath it, the January 2026 uptrend is located around .7025. A convincing break of both would shift attention towards .7000 and .6900.

On the topside, the recent advance stalled just beneath the February 2023 high earlier this month, leaving both levels relevant for those maintaining a bullish bias. A clean break above would signal a resumption of the broader uptrend and place a retest of the June 2022 high at .7282 on the table.

With key moving averages sloping higher, price holding within multiple uptrend structures, and oscillators still favouring long setups over shorts, that remains the directional bias I’m running with for now, especially should broader risk appetite strengthen.