- AUD/JPY gains momentum near 97.55 in Thursday’s Asian session, up 0.36% on the day.
- Improved July retail sales in China boost Aussie.
- Uncertainty over BoJ rate hikes could weigh on the Japanese Yen.
The AUD/JPY pair is attracting some buyers around 97.55 during Asian trading hours on Thursday. Upbeat July retail sales data in China is providing some support to the Australian Dollar (AUD). Investors are looking forward to Reserve Bank of Australia (RBA) Governor Michele Bullock’s speech on Friday for fresh catalysts.
Data released by China’s National Bureau of Statistics on Thursday showed that China’s retail sales rose 2.7% year-on-year in July, compared to 2.0% seen in the previous month. This figure was better than expected by the market. Meanwhile, Chinese industrial production stood at 5.1% year-on-year in July from 5.3% in June, below the market consensus of 5.2%. The Aussie is up in response to the reports. However, the Chinese economy remains fragile, with recent government measures providing only a minor boost to private spending. This will likely weigh on the AUD in the short term, as China is Australia’s largest trading partner.
On the other hand, Australia’s unemployment rate rose to 4.2% in July from 4.1% in June, the Australian Bureau of Statistics (ABS) revealed on Thursday. Economists had expected the rate to remain unchanged at 4.1%. Markets are now fully pricing in the possibility of a 25 basis point (bp) rate cut by the RBA at the last meeting of the year in December, according to the ASX rate tracker.
As for the JPY, uncertainty over the timing of the Bank of Japan (BoJ) rate hike is weighing on the Japanese Yen (JPY). On Thursday, Japanese Economic Minister Yoshitaka Shindo said that the government will work closely with the BoJ to carry out flexible macroeconomic policy management. BoJ Governor Kazuo Ueda stated that the Japanese central bank will continue to raise rates and adjust the degree of easing if the current economic and price outlook is realized.
Australian Dollar FAQs
One of the most important factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Since Australia is a resource-rich country, another key factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is inflation in Australia, its growth rate and the Trade Balance. Market sentiment, i.e. whether investors are betting on riskier assets (risk-on) or seeking safe havens (risk-off), is also a factor, with risk-on being positive for the AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The RBA’s main objective is to maintain a stable inflation rate of 2%-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low ones. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the AUD and the latter positive for the AUD.
China is Australia’s largest trading partner, so the health of the Chinese economy greatly influences the value of the Australian Dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, which increases demand for the AUD and drives up its value. The opposite occurs when the Chinese economy is not growing as fast as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, worth $118 billion per year as of 2021 data, with China being its main destination. The price of iron ore can therefore be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD rises as well, as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to lead to a higher probability of a positive trade balance for Australia, which is also positive for the AUD.
The trade balance, which is the difference between what a country earns from its exports and what it pays for its imports, is another factor that can influence the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value solely because of the excess demand created by foreign buyers wanting to purchase its exports versus what it spends on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.
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.
