AUD/JPY clings to gains around 99.00 as Trump backtracks on tariff threats
- AUD/JPY catches fresh bids amid easing fears about the worsening US-China trade relations.
- Domestic political chaos, delayed BoJ rate hike bets undermine the JPY and support the cross.
- The RBA’s hawkish outlook further benefits the Aussie and backs the case for additional gains.
The AUD/JPY cross opens with a bullish gap at the start of a new week and recovers a part of Friday's slump of over 250 pips to the 97.80 region. Spot prices climb back above the 99.00 mark during the Asian session and for now, seem to have stalled a sharp retracement slide from the 101.00 neighbourhood, or the highest level since November 2024, touched last Thursday.
Against the backdrop of domestic political turmoil, the risk-on impulse undermines the Japanese Yen's (JPY) safe-haven status and turns out to be a key factor acting as a tailwind for the AUD/JPY cross. Japan's Komeito party ended a 26-year partnership with the ruling Liberal Democratic Party (LDP), jeopardizing Sanae Takaichi's bid to become the country's first woman Prime Minister. This adds a layer of uncertainty and could further delay the Bank of Japan (BoJ) rate hike plan.
Meanwhile, US President Donald Trump backtracked on his threatened 100% tariffs on Chinese imports from November 1 and posted on Truth Social that the US does not wish to hurt China. Trump added further that China’s economy will be fine and that both countries wish to avoid economic pain. This helps ease fears of a worsening trade conflict between the world's two largest economies and boosts the global risk sentiment, weighing on the JPY and benefiting the China-proxy Aussie.
The AUD/JPY bulls seem unaffected by Chinese data, which showed that trade surplus narrowed to CNY645.47 billion for September from the previous figure of CNY732.7 billion. Additional details revealed that China's imports advanced 7.5% YoY in the same period vs. 1.7% recorded previously, and exports rose 8.4% YoY vs. 4.8% in July. In US Dollar (USD) terms, China’s Trade Surplus expanded less than expected in September.
The Australian Dollar (AUD) draws additional support from the Reserve Bank of Australia's (RBA) hawkish outlook, signaling that inflation in the September quarter may be higher than expected at the time of the August meeting. The RBA also said it required more time to gauge the full effects of a cumulative 75 basis points (bps) rate cut in 2025. This, in turn, backs the case for additional gains for the AUD/JPY cross, though bets for an imminent BoJ rate hike this year might cap the upside.
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.
Recommended Articles
