- The Aud/JPY weakens around 94.40 in the first measures of the European session on Monday.
- It is widely expected that the RBA cut the cash rate in another quarter to Tuesday.
- Japan’s real wages fell 2.9% in May, the most pronounced fall in almost 2 years.
The Aud/JPy cross loses land about 94.40 during the early European session on Monday. The Australian dollar (AUD) weakens in front of the Japanese Yen while widely expected that the Australian Reserve Bank (RBA) cut its official cash (OCR) rate in another room on Tuesday.
The markets anticipate that the RBA will make a rate cut of 25 basic points (PBS) at the July meeting on Tuesday in the middle of an inflation cooling and an uncertain growth perspective. This movement would reduce its OCR to 3.60% from 3.85%. Operators in financial markets are now valuing consecutive 25 PBs cuts in July and August, followed by a third party in November. “Future orientation is expected to sound moderate, leaving the door open for more features around the year,” said Ig Tony Sycamore analyst. Betting for a RBA rates cut could weaken the audience in front of the JPY in the short term.
The president of the United States, Donald Trump, said on Saturday that his administration is close to ending several trade agreements in the next few days, while appointing a dozen countries later on Monday that they are receiving letters with their new higher tariffs. Trump added that the rates in the letters would go into force on August 1 and warned that some could be as high as 70%. The renewed tariff concerns could boost safe refuge flows, supporting the JPY in front of the AUD.
On the other hand, government data showed on Monday that Japan’s real wages fell 2.9% in May with respect to the previous year, since salary growth continued to lag behind persistent inflation. This figure registered the fifth consecutive monthly fall and the most pronounced fall in almost two years. This report could drag the JPY down and create a tail wind for the crossing.
RBA – Frequently Questions
The Bank of the Australian Reserve (RBA) sets interest rates and manages Australia’s monetary policy. The decisions are made by a advice of governors in 11 meetings per year and in the necessary emergency meetings that are necessary. The main mandate of the RBA is to maintain price stability, which means an inflation rate of 2%-3%, but also “… contribute to the stability of currency, full employment and economic prosperity and the well-being of the Australian people.” Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian dollar (AUD) and vice versa. Other RBA tools are the quantitative relaxation and hardening of monetary policy.
Although traditionally it has always been considered that inflation is a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross -border capital controls. Moderately high inflation now tends to take the central banks to raise their interest rates, which in turn has the effect of attracting more capital of world investors who are looking for a lucrative place to keep their money. This increases the demand for the local currency, which in the case of Australia is the Australian dollar.
Macroeconomic data calibrates the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contraction economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment and surveys about consumer feeling can influence the AUD. A strong economy can encourage the Bank of the Australian Reserve to raise interest rates, also supporting the Aud.
The quantitative easing (QE) is a tool used in extreme situations in which to lower interest rates is not enough to restore credit flow in the economy. The QE is the process by which the Bank of the Australian Reserve (RBA) prints Australian dollars (AUD) in order to buy assets – normally State or business bonds – to financial institutions, thus providing them with the liquidity they need so much. The one usually translates into a weaker audience.
The quantitative hardening (QT) is the reverse of the QE. It is carried out after the QE, when economic recovery is underway and inflation begins to increase. While in the QE the Bank of the Australian Reserve (RBA) buys state and business bonds from financial institutions to provide liquidity, in QT the RBA stops buying more active and stops reinvesting the main one that expires of the bonds it already has. It would be positive (or bullish) for the Australian dollar.
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.
