The AUD/JPY currency pair has retraced its recent gains, currently trading around 100.50 during early European hours on Tuesday. However, potential downside risks for the cross may be limited due to the Reserve Bank of Australia‘s (RBA) hawkish stance on monetary policy.
The RBA has asserted that its current cash rate of 4.35% is sufficiently restrictive to guide inflation back within the target range of 2%-3%, while also supporting employment levels. As a result, a rate cut appears unlikely in the near future, particularly not at next month’s meeting.
Market participants are now turning their attention to Australia’s third-quarter Consumer Price Index (CPI) data, set to be released on Wednesday, as they seek further insights into the RBA’s potential policy direction.
On the Japanese side, the recent parliamentary election saw Japan’s ruling Liberal Democratic Party (LDP) coalition lose its majority, creating uncertainty surrounding the Bank of Japan‘s (BoJ) rate-hike plans. This political shift is exerting downward pressure on the Japanese Yen (JPY).
The BoJ’s interest rate decision will be a key focus on Thursday, with nearly 86% of economists surveyed by Reuters anticipating that the central bank will keep its current rates unchanged at this month’s meeting.
Additionally, Japan’s Finance Minister Katsunobu Kato stated on Tuesday that he is “closely watching FX movements, including those driven by speculators, with heightened vigilance.” However, he refrained from commenting on specific forex levels, emphasizing the need for stable currency movements that reflect underlying economic fundamentals.
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