The AUD/JPY currency pair has regained some of its recent losses, rising to approximately 98.30 during the early European session on Thursday, ending a three-day losing streak. A generally positive risk sentiment, combined with a decline in foreign investments in Japanese stocks, has exerted downward pressure on the Japanese Yen (JPY), giving support to the Australian Dollar (AUD).
Data released by Japan’s Ministry of Finance on Thursday revealed that foreign investment in Japanese stocks fell by ¥446 billion for the week ending November 23, a sharp contrast to the ¥127.6 billion in inflows recorded the previous week. This reduction in foreign capital flows has contributed to selling pressure on the JPY, benefiting the AUD/JPY cross. However, ongoing geopolitical tensions in the Middle East and the Russia-Ukraine conflict may drive safe-haven flows into the JPY, which could limit further declines in the currency.
RBA’s Hawkish Stance Supports AUD Amid Limited Downside Risk
The Australian Dollar (AUD) has found some support from the Reserve Bank of Australia’s (RBA) hawkish tone, despite global risks. Australia’s Consumer Price Index (CPI) inflation for October remained well within the central bank‘s target range. However, the RBA is unlikely to cut interest rates soon, with officials seeking further evidence that price pressures are sufficiently under control. According to Capital Economics’ economist Mr. Thieliant, inflation is moderating only slowly.
“The RBA stated in its latest meeting that it would need to see more than one favorable quarterly CPI print to be confident in a sustainable decline in inflation,” Thieliant explained. “Given this, we expect the central bank to hold off on rate cuts until the second quarter of next year.” This cautious stance limits the downside risk for the AUD in the near term.
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