AUD/JPY falls to near 99.00 amid market caution, awaits Israel’s reaction to Iran’s attack

• AUD/JPY edges lower on risk aversion as traders expect Israel to respond to Iran’s assault.
• Australian Dollar faced challenges amid apprehensions that the RBA may ease monetary tightening in the foreseeable future.
• Japanese Yen could experience an intervention as Japanese ministers noted to take necessary measures to ensure FX stability.

AUD/JPY relinquishes its recent gains, likely attributable to risk aversion as investors await Israel’s reaction to Iran’s air strike on Saturday with caution. Furthermore, the Australian Dollar (AUD) encounters obstacles amid apprehensions that the Reserve Bank of Australia (RBA) may be compelled to reduce interest rates in the foreseeable future. The AUD/JPY cross trades around 99.10 during the European session on Tuesday.

The Australian Dollar (AUD) faces increased negative sentiment, which contributes to downward pressure for the AUD/JPY cross. This sentiment is driven by divergent monetary policy outlooks between the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed). The “Financial Review” suggests that the RBA may need to ease monetary policy before the Fed. Furthermore, persistent high inflation in the United States (US), the world's largest economy, introduces uncertainty regarding whether the Federal Reserve will take action this year.

Moreover, However, the Australian Dollar pares losses after mixed data from its significant trading partner, China. This rebound may have helped to mitigate the losses of the AUD/JPY cross. China's Gross Domestic Product (GDP) for the first quarter of 2024 increased by 1.6% QoQ, exceeding 1.0% prior. Annual GDP growth came at 5.3%, against the expected 5.0% and the previous reading of 5.2%. However, China's Industrial Production (YoY) in March increased by 4.5%, falling short of market expectations of 5.4% and the previous reading of 7.0%.

Meanwhile, the Japanese Yen might have faced challenges due to the Bank of Japan's (BoJ) dovish outlook, consequently, limiting the downside of the AUD/JPY cross. The BoJ refrained from guiding future policy measures following the cessation of negative interest rates in March.

As per Reuter’s reports on Tuesday, Japan's Chief Cabinet Secretary Yoshimasa Hayashi emphasized the importance of currencies moving in a stable manner that reflects underlying fundamentals. He noted that authorities are closely monitoring foreign exchange (FX) movements and are prepared to take all necessary measures to ensure stability. Similarly, Japanese Finance Minister Shunichi Suzuki reiterated his vigilance regarding FX movements and affirmed his readiness to implement any measures deemed necessary.