The AUD/JPY currency pair experienced a retracement of recent gains during the Asian session on Monday, with market speculation swirling around an impending shift in the Bank of Japan‘s (BoJ) policy stance. The Japanese Yen (JPY) strengthened as geopolitical tensions in the Middle East escalated, fostering increased demand for the safe-haven currency and acting as a hindrance for the AUD/JPY cross, which edged lower to around 96.60.
The United States (US) and the United Kingdom (UK) conducted fresh air strikes on the Iran-backed Houthi militant group in Yemen over the weekend. This response was triggered by a drone strike that claimed the lives of three US service members in Jordan. Further amplifying the unease, White House national security adviser Jake Sullivan cautioned on Sunday that these US airstrikes on Iranian-backed militias marked only the beginning, hinting at potential strikes on Iranian soil.
The Australian Dollar (AUD) faced selling pressure as the S&P/ASX 200 Index retreated from last week’s record high, particularly impacting the miners and energy sectors. This additional downward pressure affected the AUD/JPY cross.
Adding to the market dynamics, Australia’s Trade Balance for January exhibited a reduction, standing at 10,959 million compared to the revised figure of 11,764 million in December. On a positive note, the Judo Bank Composite Purchasing Managers Index (PMI) for January improved to 49, up from 48.1 previously, and the Services PMI saw an increase to 49.1 from the previous figure of 47.9.
Looking ahead, the Reserve Bank of Australia (RBA) is set to announce its interest rate decision on Tuesday. Market expectations are that the RBA will maintain the cash rate at the current level of 4.35%. Investors are keenly anticipating insights from RBA Governor Michele Bullock’s speech on the monetary policy outlook, which could offer valuable perspectives on the central bank‘s stance and considerations for future policy actions.
