AUD/JPY gains on growing expectations for a more hawkish RBA
- AUD/JPY continues its winning streak after the stronger Australian CPI was released on Wednesday.
- Australia’s 10-year government bond yield has surged to 4.49% near five-month highs on waning expectations of the RBA rate cuts.
- The Japanese Yen continues to depreciate as the BoJ is expected to abstain from implementing rate hikes on Friday.
AUD/JPY edges higher for the fourth consecutive session on Thursday. The Australian Dollar (AUD) found support following the release of Australian Consumer Price Index (CPI) data on Wednesday, which exceeded expectations. This development hints at a potentially hawkish stance for the Reserve Bank of Australia’s (RBA) monetary policy, bolstering the AUD and subsequently supporting the AUD/JPY pair.
Australia’s 10-year government bond yield has surged above 4.49%, nearing five-month highs, as robust domestic inflation figures have strengthened expectations of the RBA delaying interest rate cuts. Moreover, easing tensions in the Middle East has fostered a positive market sentiment, benefiting risk-sensitive currencies like the AUD.
The Japanese Yen (JPY) continues to depreciate ahead of the upcoming release of the Bank of Japan’s (BoJ) Monetary Policy Statement scheduled for Friday. It's widely anticipated that the BoJ will abstain from implementing rate hikes in this meeting.
According to reports from Nikkei, the BoJ is likely to deliberate on the "impact of accelerating Yen depreciation," indicating that the central bank may intervene in the foreign exchange markets if the JPY weakens.
Daily Digest Market Movers: AUD/JPY appreciates on hawkish sentiment surrounding RBA
- According to Luci Ellis, Westpac's chief economist and former Assistant Governor (Economic) at the Reserve Bank of Australia, inflation slightly surpassed expectations in the March quarter. They anticipate the Board will maintain interest rates in May and have revised the projected date for the initial rate reduction from September to November this year.
- Australia’s Consumer Price Index (CPI) rose by 1.0% QoQ in the first quarter of 2024, against the expected 0.8% and 0.6% prior. CPI (YoY) increased by 3.6% compared to the forecasted 3.4% for Q1 and 4.1% prior.
- Australia’s Monthly Consumer Price Index (YoY) rose by 3.5% in March, against the market expectations and the previous reading of 3.4%.
- On Tuesday, Australia's Judo Bank Composite Purchasing Managers Index (PMI) surged to a 24-month high, indicating an improvement from the previous month. While the Manufacturing PMI reached an eight-month high, the Services PMI declined to a two-month low. This has bolstered the hawkish sentiment for the RBA’s stance on its interest rate trajectory.
- According to the Japan Times, the proportion of Japanese companies intending to increase their pay scales reached 70.7%, marking a rise of 6.3 percentage points from the previous year. Additionally, the number of companies planning to implement pay-scale hikes and regular pay increases totaling 5% or more amounted to 36.5%, nearly doubling from the previous year. This could provide support for the Yen.
- Reuters reported that Bank of Japan (BoJ) Governor Kazuo Ueda reiterated on Tuesday that the central bank would raise interest rates again if trend inflation accelerates toward its 2% target, in line with its forecast. Ueda also said that it is hard to predict in advance the ideal timeframe for the Bank of Japan (BoJ) to gather sufficient data before considering a policy change.
- The Tokyo Consumer Price Index (CPI) for the year ended April is scheduled to be released during the early Friday session in Japan.
Technical Analysis: AUD/JPY moves above the psychological level of 101.00
The AUD/JPY trades around 101.10 on Thursday, edging towards the upper boundary of the daily ascending channel after surpassing April’s high of 100.81. Moreover, the 14-day Relative Strength Index (RSI) is trending above the 50-level, indicating a bullish sentiment. The immediate resistance is seen at the major level of 101.50.
In case of a downside movement, immediate support for the AUD/JPY pair could be found at the psychological level of 101.00, followed by the major support level of 100.81. A breach below this level might lead to a further decline toward the support level of 99.65, followed by the lower boundary of the ascending channel around the level of 99.00.
AUD/JPY: Daily Chart
Australian Dollar price this week
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies this week. The Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.46% | -0.71% | -0.29% | -1.22% | 0.49% | -0.70% | 0.35% | |
| EUR | 0.46% | -0.24% | 0.17% | -0.74% | 0.94% | -0.22% | 0.80% | |
| GBP | 0.70% | 0.24% | 0.40% | -0.50% | 1.18% | 0.01% | 1.05% | |
| CAD | 0.29% | -0.17% | -0.40% | -0.92% | 0.78% | -0.41% | 0.64% | |
| AUD | 1.20% | 0.75% | 0.50% | 0.91% | 1.68% | 0.51% | 1.55% | |
| JPY | -0.49% | -0.95% | -1.20% | -0.77% | -1.70% | -1.19% | -0.14% | |
| NZD | 0.68% | 0.23% | -0.03% | 0.39% | -0.52% | 1.17% | 1.04% | |
| CHF | -0.35% | -0.81% | -1.06% | -0.64% | -1.56% | 0.14% | -1.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.