AUD/JPY rebounds toward 96.00 near five-month highs
- AUD/JPY has rebounded toward the five-month high at $96.21, which was reached on Wednesday.
- The AUD receives support since the RBA surprisingly decided to maintain cash rates, against an expected 25 basis point cut.
- The Japanese Yen faces challenges as escalating trade tensions prompt the BoJ to hold off on rate hikes this year.
AUD/JPY rises after registering mild losses in the previous session, trading around 95.90 during the European hours on Thursday. The currency cross appreciates as the Australian Dollar (AUD) continues gaining support against its peers after the Reserve Bank of Australia (RBA) surprisingly decided to maintain the Official Cash Rate (OCR) at 3.85% earlier this week, against a highly expected 25 basis point cut.
However, the upside of the AUD/JPY cross could be limited as the AUD could face challenges amid rising expectations of an RBA rate cut in August. Reuters survey poll indicated that all 30 analysts forecasted Australia’s central bank to cut the cash rate by 25 basis points to 3.60% in August.
RBA Governor Michele Bullock warned that inflation risks persist as elevated unit labor costs and weak productivity could push inflation above forecasts. Moreover, RBA Deputy Governor Andrew Hauser mentioned that the global economy is facing uncertainty due to tariff effects.
Moreover, the Japanese Yen (JPY) is under pressure as escalating trade tensions heighten risks to Japan’s economy, potentially prompting the Bank of Japan (BoJ) to hold off on any interest rate hikes this year. Adding to the pressure, Japan's Producer Price Index (PPI) released earlier this Thursday, hinted that inflation pressures might be cooling off.
Japan’s Producer Price Index (PPI) fell 0.2% month-over-month in June, the second straight month of decline, after a downwardly revised 0.1% decline in May. Meanwhile, the annual PPI rose 2.9% in June, slowing from a 3.3% (revised from 3.2%) previous growth. The readings matched market forecasts and were the lowest producer inflation since August 2024.
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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