The AUD/JPY pair has recently reversed its upward trajectory, a move largely attributed to escalating risk aversion stemming from geopolitical tensions as investors await Israel’s response to Iran’s recent air strike. The Australian Dollar (AUD) faces headwinds amidst concerns that the Reserve Bank of Australia (RBA) may be compelled to cut interest rates in the near future, exerting downward pressure on the AUD/JPY cross, which currently hovers around 99.10 during the European trading session on Tuesday.
The negative sentiment surrounding the Australian Dollar is exacerbated by differing monetary policy outlooks between the RBA and the Federal Reserve (Fed). The prospect of the RBA implementing monetary easing before the Fed, as suggested by the “Financial Review,” adds to investor apprehension. Additionally, lingering high inflation in the United States (US) introduces uncertainty regarding the timing of any potential action by the Federal Reserve this year.
Despite these challenges, the Australian Dollar finds some relief following mixed data from China, a key trading partner. China’s first-quarter Gross Domestic Product (GDP) exceeded expectations with a 1.6% quarter-on-quarter increase and a 5.3% year-on-year growth rate. However, industrial production in March fell short of market forecasts, rising by 4.5% year-on-year compared to expectations of 5.4%.
On the other hand, the Japanese Yen faces its own set of obstacles due to the Bank of Japan‘s (BoJ) dovish stance, which has tempered the downside for the AUD/JPY cross. Following the cessation of negative interest rates in March, the BoJ refrained from providing guidance on future policy measures.
Japanese officials, including Chief Cabinet Secretary Yoshimasa Hayashi and Finance Minister Shunichi Suzuki, have underscored the importance of stable currency movements aligned with underlying fundamentals. They have pledged to closely monitor foreign exchange (FX) fluctuations and stand prepared to intervene if necessary to maintain stability in the currency markets.
