AUD/JPY rises toward 93.00, rebounds due to easing safe-haven demand
- AUD/JPY advances with the shift in sentiment following renewed optimism surrounding US-China trade relations.
- Top diplomats from the US and China are scheduled to meet in Switzerland on May 10 to reignite stalled negotiations.
- The AUD receives support from optimism around a potential breakthrough in US-China trade talks.
AUD/JPY snaps a three-day losing streak and trades around 92.90 during European hours on Thursday, buoyed by waning demand for safe-haven assets like the Japanese Yen (JPY). The shift in sentiment follows renewed optimism surrounding US-China trade relations, with US Treasury Secretary Scott Bessent scheduled to meet China's top economic official in Switzerland on May 10 to reignite stalled negotiations.
Investor confidence also received a boost from US President Donald Trump, who hinted at a significant trade deal announcement. “Big News Conference tomorrow at 10:00 A.M., The Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!” he posted Wednesday night. This upbeat rhetoric has weighed on the JPY by reducing safe-haven flows.
Meanwhile, the Bank of Japan (BoJ) released the Minutes from its March 18–19 meeting, indicating policymakers' willingness to continue raising interest rates if economic and inflation targets are met. However, members expressed caution, citing elevated downside risks from evolving US policies. BoJ Governor Kazuo Ueda also highlighted the uncertainty around rising food prices and their impact on inflation, stating the bank will continue to monitor these factors closely.
Supporting the Australian Dollar (AUD), optimism around a potential breakthrough in US-China trade talks—critical for Australia's export-driven economy—has lifted sentiment. Additional support comes from the People's Bank of China's (PBoC) plans to cut key lending rates and reduce banks’ reserve requirements to stimulate growth.
Australia’s Ai Group Industry Index improved in April, though it still marked the 33rd consecutive month of contraction, particularly in manufacturing sectors tied to exports. These economic conditions have strengthened expectations that the Reserve Bank of Australia (RBA) could lower the cash rate by 25 basis points to 3.85% later this month.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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