Australian Dollar holds losses against Japanese Yen following China’s Trade Balance data

• AUD weakens on safe-haven shift due to geopolitical tensions in the Strait of Hormuz.
• China's Trade Balance beat expectations, though moderating export and import growth presents a mixed picture.
• AUD/JPY could rebound as Japanese Yen retreats despite joint Tokyo-Washington currency intervention efforts.

AUD/JPY halts its three-day winning streak, trading around 111.30 during the Asian hours on Friday. The currency cross depreciates as the Australian Dollar (AUD) loses ground, driven by a surge in global safe-haven demand. Escalating tensions in the Strait of Hormuz have rattled market stability, sparking widespread skepticism over whether this vital shipping route will reopen anytime soon.

Meanwhile, China’s latest trade figures present a mixed economic picture that could carry significant implications for Australia, given the close trading relationship between the two nations. China's June Trade Balance in US Dollar terms came in at $112.5 billion, topping expectations of $107.0 billion though falling short of the previous $125.62 billion figure. In Chinese Yuan terms, the Trade Surplus widened to 767 billion, beating the estimated 740 billion, but trailing the prior 859.05 billion reading. July exports grew 23.9% year-over-year compared to June's 27% rise, while imports expanded by 27.5% over the same period, moderating from the previous 36% growth rate.

RBA hike risk keeps modest upside bias in AUD

Rabobank’s FX strategists continue to see scope for further RBA tightening, arguing that “there is still risk of one more rate hike this year in November.” They note that “the market will be hoping that the RBA’s August 11 policy meeting will provide more clarity on rate hike risks,” particularly in light of shifting expectations around the policy path. Against this backdrop, Rabobank maintains “a modest upside bias in Australian Dollar out to 12 months.

Despite these pressures, the AUD/JPY cross could regain traction as the Japanese Yen (JPY) gives back some of its recent gains. Those initial gains were sparked by joint currency intervention from Tokyo and Washington, which has fueled speculation that authorities might step in again.

However, the JPY's quick retreat highlights ongoing skepticism about whether official intervention can overcome its structural weakness, a weakness continually dragged down by wide interest rate differentials, escalating fiscal concerns, and stubbornly high energy and import costs.

Asian currency slide seen as catalyst for US Dollar intervention

Analysts at ING argue that the recent bout of weakness across key Asian currencies may have been a key trigger for official action in the US Dollar/Japanese Yen pair. They note that "large falls in the Japanese yen, Korean won and Taiwanese dollar might have been one of the reasons the US Treasury stepped in with USD/JPY intervention," and suggest the move "could be well-timed if the Fed doesn't hike and the Dollar falls," potentially aligning policy dynamics with efforts to stabilise the Yen.