The AUD/JPY cross attracted buyers for the second consecutive day on Tuesday, remaining close to a one-and-a-half-week high near the 97.85 mark reached on Monday. Spot prices are currently trading in the 97.15-97.20 range, up about 0.25% for the day, supported by several key factors.
The Australian Dollar (AUD) continues to benefit from the Reserve Bank of Australia‘s (RBA) hawkish stance, with the central bank signaling readiness to raise interest rates further to tackle persistent inflation. RBA Governor Michele Bullock reinforced this position last week, emphasizing the need to remain vigilant about inflation risks and stating that the RBA would not hesitate to tighten monetary policy again if necessary. This, combined with a slightly weakened Japanese Yen (JPY), is a primary driver behind the AUD/JPY’s upward momentum.
Contributing to the pressure on the Yen, former Bank of Japan (BoJ) board member Makoto Sakurai suggested on Monday that the BoJ would be unable to hike rates again in 2024, predicting a rate increase by March 2025 instead. This dovish outlook aligns with recent comments from BoJ Deputy Governor Shinichi Uchida, who indicated that the central bank would refrain from raising rates amid market instability. Additionally, a generally positive market sentiment has reduced demand for the safe-haven Yen, further boosting the risk-sensitive Australian Dollar.
However, persistent geopolitical risks, including ongoing conflicts in the Middle East and the prolonged Russia-Ukraine war, could temper market optimism. Moreover, the BoJ’s summary of opinions from its July policy meeting revealed that some members see room for future rate hikes and policy normalization, which could limit deeper losses for the Yen and cap gains for the AUD/JPY cross. This suggests that traders should exercise caution before betting on further appreciation in the pair.
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