The AUD/JPY pair extended its gains for the second consecutive day, trading around 98.90 during the early European session on Friday. The Australian Dollar (AUD) advanced against the Japanese Yen (JPY) as improved risk sentiment followed a stronger-than-expected recovery in U.S. Retail Sales, alleviating concerns about a potential recession in the United States.
Adding to the AUD’s strength, Reserve Bank of Australia (RBA) Governor Michele Bullock’s hawkish remarks are providing additional support to the currency. On Friday, Governor Bullock emphasized the central bank‘s focus on potential upside risks to inflation, signaling that no rate cuts are anticipated in the near term. She noted that the RBA has struck the right balance between controlling inflation and maintaining economic stability, according to ABC News.
Earlier in the week, data from China revealed that Retail Sales grew by 2.7% year-on-year in July, surpassing market expectations of 2.6% and recovering from June’s 17-month low of 2.0%. This positive data may have bolstered the Aussie Dollar, as China is a key trading partner for Australia.
However, the upward momentum of the AUD/JPY pair could face resistance as the Japanese Yen gains support from Japan’s recent GDP report, which indicated growth in the second quarter. This steady economic performance increases the likelihood of a near-term interest rate hike by the Bank of Japan (BoJ).
In contrast, political uncertainty in Japan might exert downward pressure on the JPY. Japanese Prime Minister Fumio Kishida announced on Wednesday that he will not seek re-election as the leader of the Liberal Democratic Party (LDP) in September, potentially adding to the Yen’s volatility.
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