AUD/JPY falls to fresh three-week lows near 91.00

• AUD/JPY has fallen sharply below 91.30 after the RBA hiked rates by 25 basis points for the fifth time.
• Lowe’s has raised the OCR to 3.60% to be competitive against persistent inflation.
• A continuation of expansionary monetary policy by the BoJ is expected.

AUD/JPY has given way to support at 91.30 after the Reserve Bank of Australia (RBA) announced a fifth consecutive 25 basis point (bp) rate hike. This has brought the Official Cash Rate (OCR) to 3.60%. The pair has fallen over 65 pips to hit a 22-day low of 91.06.

Last week, the Australian Bureau of Statistics reported a significant decline in the monthly Consumer Price Index (CPI) to 7.4%. However, a one-off drop in inflation is not enough to call for a pause in the restrictive policy of any central bank. The inflation figures are still above the desired rate and it takes a long time to reach the level of price stability.

Also, the Gross Domestic Product (GDP) figures softened as higher RBA rates have forced companies to postpone their expansion plans. Fourth quarter GDP expanded 0.5%, below consensus of 0.8% and previous release of 0.7%.

Standard Chartered analysts have recently revised the terminal rate to 4.10% from 3.50% previously. RBA Governor Philip Lower is making significant efforts to achieve price stability; however, Australian inflation is extremely persistent.

This week the Bank of Japan (BoJ) is expected to announce the decision on interest rates on Friday. A continuation of expansionary monetary policy by the BoJ is expected as Tokyo inflation fell in February after nine consecutive increases. The BoJ needs to spur inflationary pressures again to keep the yen competitive against rival currencies.