Sell AUDUSD at around 0.7670 - HSBC

Research Team at HSBC recommends to sell AUD-USD at 0.7670 on a tactical basis, with a target of 0.7475 and a stop at 0.7750 as the currency faces both domestic and external headwinds in the coming weeks.

Key Quotes

“The risk-reward around Australia's wage data is skewed to the downside for the AUD. Wage data is released on 22 February (Wednesday) with the consensus looking for a small uptick in quarterly wage growth to 0.5% from 0.4%. On a year-on-year basis, wages are expected to rise 1.9%, as they did in Q3. In our view the risks to the currency are skewed to the downside around this release. Wage growth has been in a long-term downward trend in Australia since the mid-2000s. The unemployment rate at 5.7% suggests there is still spare capacity in the labour market, and the split of jobs growth is a concern. In the last 12 months, although 100k jobs were added, 160k were parttime jobs with a fall of 56k in full-time employment. This suggests wage pressures will remain subdued.”

“A similar story was seen in New Zealand recently where average hourly earnings fell in Q4 for the first time since 2012, despite a seemingly resilient economy and labour market. On a broader theme, both the US and the UK have much tighter labour markets but have shown no discernable pick up in wage growth. We see little reason for this to be different in Australia, and after a 6% rally in AUD-USD this year, we believe the risk reward is skewed to the downside in the AUD.”

“Externally, we believe the USD is set to regain some traction as focus shifts back toward potential announcements on some of the administration's domestic policy pledges. We believe that the global reflation theme, which has helped buoy the AUD and held back the USD so far in 2017, is set to peter out.”