The AUD/JPY pair retraced its recent gains on Tuesday, trading around 100.70 during the early European session, as the Japanese Yen (JPY) regained some strength. The pullback follows comments from Japanese officials, including Finance Minister Katsunobu Kato, who warned that authorities would take “appropriate action” to address sharp fluctuations in the foreign exchange market, suggesting the possibility of market intervention to support the Yen.
Despite the Yen’s recent rebound, its upside potential remains capped by ongoing uncertainties surrounding the Bank of Japan‘s (BoJ) monetary policy. The BoJ’s October Summary of Opinions revealed a divided stance among policymakers regarding future rate hikes, further complicating the outlook for the Japanese currency. Additionally, the political instability of Japan’s fragile minority government is seen as a barrier to any aggressive tightening of monetary policy in the near term.
Australian Dollar Faces Downward Pressure Amid Trade Concerns
The Australian Dollar (AUD) is facing downward pressure, largely due to concerns over potential tariff increases on Chinese goods under the incoming US administration of President-Elect Donald Trump. Given that China is one of Australia’s largest trading partners, any escalation in trade tensions could negatively impact Australia’s export outlook. Additionally, China’s recent stimulus measures, which failed to meet investor expectations, have raised concerns over demand from Australia’s key trading partner, further weighing on the AUD.
On a more positive note, Australia’s consumer sentiment showed signs of improvement. The Westpac Consumer Confidence Index rose by 5.3% in November, reaching 94.6 points, its highest level in two and a half years. This marks the second consecutive month of growth, signaling some optimism in the Australian economy. However, with the index still below the 100-point mark, pessimists continue to outnumber optimists, reflecting lingering concerns about the broader economic outlook.
RBA’s Hawkish Stance Provides Some Support to AUD
While the Australian Dollar faces headwinds, its downside may be limited by the hawkish stance of the Reserve Bank of Australia (RBA). Governor Michele Bullock, following the central bank’s decision to hold rates last week, reaffirmed the RBA’s commitment to a restrictive monetary policy in response to ongoing inflationary pressures and a robust labor market. This stance continues to support the AUD, although broader global trade concerns could temper its gains.
As the week progresses, the outlook for the AUD/JPY pair will remain sensitive to developments in global trade, Japan’s monetary policy stance, and market expectations surrounding US-China relations under the Trump administration.
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