The AUD/JPY currency pair has drawn some buying interest during the Asian trading session on Friday, aiming to extend the rebound observed the previous day from its lowest level since April 22 at 99.20. Currently, spot prices hover around the 100.75 mark, reflecting a modest gain of just over 0.10% for the day. This uptick appears to break a five-day losing streak, although a substantial appreciation remains elusive.
US Economic Data and Market Sentiment
The recent better-than-expected US macroeconomic data has contributed to market stability, reflected in a generally positive trend across equity markets. This stability reduces the appeal of the traditionally safe-haven Japanese Yen (JPY) and benefits the riskier Australian Dollar (AUD). However, expectations of a more hawkish stance from the Bank of Japan (BoJ) are tempering traders’ enthusiasm for the JPY and creating resistance for the AUD/JPY pair.
BoJ Rate Hike Expectations
Market participants increasingly anticipate that the BoJ may raise interest rates at its forthcoming policy meeting next week. This expectation is bolstered by recent data showing that core inflation in Tokyo—a key economic indicator—has been rising for three consecutive months. Tokyo Core CPI, excluding volatile fresh food prices, increased to 2.2% year-over-year (YoY) in July, up from 2.1% in June.
Although the headline Tokyo CPI slightly decreased to 2.2% YoY from 2.3%, and the core-core CPI (excluding food and energy) fell from 1.8% to 1.5% YoY in July, the overall inflation trend remains upward. This reinforces expectations of a potential rate hike by the BoJ.
Concerns Over China’s Economic Slowdown
On the other hand, ongoing concerns about a slowdown in China—an important trading partner for Australia—continue to weigh on the Australian Dollar. The economic slowdown in the world’s second-largest economy could further pressure the AUD/JPY pair, underscoring the need for cautious optimism before confirming a near-term bottom and anticipating significant appreciation.
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