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RBA Governor Highlights Issue of Low Wage Growth But Says Rates To Rise If Economy Develops As Expected

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Speaking earlier this morning at the CEDA Annual Dinner in Melbourne, RBA governor Lowe once again highlighted the issue of subdued wage growth in the economy. Lowe stated: “Flat real wages are diminishing our sense of shared prosperity.” The governor also added:

“The lack of real wage growth is one of the reasons why some in our community question whether they are benefiting from our economic success.”

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No Real Change In Real Wages Since 2012

Between the 1995 and 2012 Australian workers saw real wages increase an average of 2% per year but since 2012 there has been hardly any change in real wages.

Lowe explained that this is a big problem for everyone and said that “The diminished trust in the idea that living standards will continue to improve is a major economic, social and political issue.”

The RBA has long highlighted this is issue as one of the main obstacles to monetary policy tightening and during today’s speech he reaffirmed the message that “It is also making it harder to implement needed economic reform.

House Price Correction Comes Amidst Positive Economic Backdrop

Furthermore, the governor noted that the RBA is watching the slump in house prices very closely, though he did say that the correction in house prices, particularly in Sydney and Melbourne, comes after very large gains as well as a favorable economic backdrop.

Regarding the outlook for the Australian economy, the governor noted that the overall picture is positive. The labor market is getting closer to full employment, and if the economy advances as expected, an increase in interest rates will be necessary.

However, there was no clue as to when this tightening might occur, and so in all, the message was negligibly different to the statements relayed in recent RBA meetings.

Technical Perspective

audusd

AUDUSD has now broken out of the bearish channel running since the 2018 highs and upon retesting the broken channel top, has found support and continued higher. Price is currently challenging the .7315 resistance level, and if we can hold above there, focus will turn to a run up to the next key resistance at the .7491 level which was the big December 2017 swing low.

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