FX.co ★ Australian Dollar Remains Firm

The Australian dollar slipped below $0.71 on Wednesday but stayed close to its three-year high as investors continued to digest the central bank’s latest meeting minutes and stronger-than-expected wage data highlighted persistent inflation pressures.

Annual wage growth accelerated to 3.4% in the December quarter, with public sector pay rising faster than private sector wages for a fourth consecutive quarter. The data underscore ongoing tightness in the labor market and add to the Reserve Bank of Australia’s inflation challenge following its recent rate hike.

The RBA’s minutes pointed to a “material shift” in inflation risks, a key factor behind the decision to lift the cash rate to 3.85%. While the board stopped short of signaling a firm commitment to further increases, still-elevated inflation and relatively loose financial conditions leave the door open for another hike.

Markets now turn their focus to January employment figures due Thursday and the Q4 GDP release early next month, both of which are expected to offer further clues on the RBA’s policy path ahead of its March meeting.