During the European session on Tuesday, the AUD/JPY pair broke its six-day winning streak, hovering around the 104.00 mark, influenced by prevailing risk aversion sentiment in the market. Conversely, the AUD/USD pair saw marginal support following the release of Westpac Consumer Confidence data in early Asian trading hours. The May data indicated a 0.3% month-over-month decline, an improvement from April’s 2.4% drop, marking the third consecutive month of decline albeit at a slower pace.
In the backdrop of these market movements, minutes from the Reserve Bank of Australia‘s (RBA) May 2024 meeting revealed that while the board contemplated raising rates, it ultimately favored maintaining a steady policy stance. Policymakers acknowledged the challenge of predicting future changes to the cash rate and highlighted the heightened risk of inflation persisting above the target for an extended duration, given recent data trends.
The Australian Dollar may find support from China’s announcement of a comprehensive stimulus package aimed at rejuvenating its struggling property market. China’s finance ministry intends to raise 1 trillion Yuan through the issuance of bonds with maturities spanning 20 to 50 years to fund larger stimulus initiatives. These measures include easing mortgage regulations and incentivizing local governments to purchase unsold properties. Given the close trade ties between Australia and China, this development could uplift sentiment in Australian markets.
Conversely, the Japanese Yen (JPY) faces challenges stemming from the substantial interest rate differential between Japan and other economies. This pressure on the JPY could further bolster the AUD/JPY cross. Market sentiment increasingly leans towards the possibility of the Bank of Japan (BoJ) considering earlier-than-expected interest rate hikes, driven by concerns surrounding the weakened Japanese Yen.
According to a Reuters report, Japanese Finance Minister Shunichi Suzuki voiced concerns regarding the adverse effects of the weak JPY. Suzuki highlighted market discussions centered on rising long-term rates and the significance of prudent national debt policies in Japan. He expressed hopes for wage increases outpacing inflation and emphasized close monitoring of foreign exchange (FX) fluctuations.
