The pair made a strong start to the month, after the Reserve Bank of Australia surprised markets by restarting its rate hike cycle and the Fed hinted to a pause, but central banks are all over the place creating an uncertain outlook.
Inflation in the US remains high and the labor market tight, with officials maintaining a mostly hawkish stance and dismissing market pricing for rate cuts this year. The debt ceiling drama in the US adds a another level of complexity and the relevant risk aversion has helped the US Dollar, although House Speaker McCarthy offered a ray of hope after Tuesday's negotiations, saying that "It is possible to get a deal by the end of the week". 
Also weighing on sentiment and AUD/USD, were yesterday's discouraging data from China, which keep fears alive for a sluggish recovery of Australia's key trading partner. Industrial production and retail sales were robust, but not as food as markets expected.
Today's data from Australia meanwhile showed that wages grew by 3.7% y/y in Q1 and the biggest increase in around eleven years. On a quarterly basis, the wage price index steadied at 0.8%. These elevated levels don't help bring down overall inflation, keeping pressure on the RBA or restrictive stance. On the other hand, they did not seem strong enough to spark fears of wage-inflation spiral, since CPI eased to 7% y/y in Q1.
The Aussie had a mixed reaction to today's wage release, but remains cautious amidst fears around China's economic rebound and the US debt ceiling. After having rejected the critical 38.2% of the 2023 high/low drop again last week, bias is clearly on the downside and AUD/USD is in risk of fresh 2023 lows (0.6563), but 0.6433 looks distant for now.
Market expectation of a Fed pause and rate cuts can support the pair and give it the chance to reclaim the EMA200 (0.6700-10). However, significant improvement in sentiment will be required for convincing moves above it, as the upside appears unfriendly with the rejected 38.2% Fibonacci and the upper border of the daily Ichimokou cloud looming large.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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