- AUD/JPY loses ground as Shigeru Ishiba has won the leadership race to become Japan’s prime minister.
- The Tokyo Consumer Price Index rose 2.2% year-on-year in September, up from a 2.6% increase in August.
- Australian Treasurer Jim Chalmers sees China’s new stimulus measures as a “really welcome development.”
AUD/JPY breaks its winning streak that began on September 16, trading around 98.60 during the early European session on Friday. The Japanese Yen (JPY) gains ground as former Defense Chief Shigeru Ishiba won the Liberal Democratic Party (LDP) presidential election to become Japan’s Prime Minister. However, the JPY received downward pressure due to growing concerns over the Bank of Japan’s (BoJ) interest rate outlook.
On Friday, the Tokyo Consumer Price Index (CPI) rose 2.2% year-on-year in September, up from a 2.6% rise in August. Meanwhile, the CPI excluding fresh food and energy rose 1.6% year-on-year in September, unchanged from the previous reading. The CPI excluding fresh foods increased by 2.0% as expected, compared to the previous increase of 2.4%.
The AUD/JPY cross may receive upside support following news of more stimulus from China, its largest trading partner, along with the Federal Reserve’s (Fed) dovish policy outlook, which lifted market sentiment towards riskier currencies such as the Australian Dollar (AUD).
Australian Treasurer Jim Chalmers is currently in China to strengthen economic ties between the two nations. During his visit, Chalmers held frank and productive discussions with the National Development and Reform Commission (NDRC). He highlighted China’s economic slowdown as a key factor in weakening global growth, while welcoming the country’s new stimulus measures as a “really welcome development.”
Interest rates FAQs
Financial institutions charge interest rates on loans from borrowers and pay them as interest to savers and depositors. They are influenced by basic interest rates, which are set by central banks based on the evolution of the economy. Typically, central banks are mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below the target, the central bank can cut base interest rates, in order to stimulate credit and boost the economy. If inflation rises substantially above 2%, the central bank typically raises core lending rates to try to reduce inflation.
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and, since Gold is priced in dollars, the price of Gold falls.
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set in a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations about the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which determines the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
