- AUD/JPY offers daily gains following reports that China is preparing to cut rates on $5 trillion worth of mortgages.
- Australian consumer inflation expectations eased to 4.4% in September, slightly below the four-month high of 4.5% recorded in August.
- BoJ board member Naoki Tamura said there is no predetermined plan for the pace of future rate hikes.
AUD/JPY trimmed its intraday gains, still trading higher around 95.10 during the European session on Thursday. The Australian Dollar (AUD) appreciated against its peers, boosted by an improvement in risk sentiment amid increasing odds that the Federal Reserve (Fed) will begin its easing cycle with a 25 basis point interest rate cut in September.
However, the Australian dollar is under downward pressure as China, one of Australia’s major trading partners, is reportedly set to cut interest rates on $5 trillion worth of mortgages as early as this month. According to Bloomberg, several Chinese banks are already finalizing preparations for these mortgage rate adjustments, which could come into effect as early as September.
Australian consumer inflation expectations eased to 4.4% in September, down slightly from a four-month high of 4.5% in August. The decline underscores the central bank’s efforts to strike a balance between bringing inflation down over a reasonable timeframe and maintaining gains in the labor market.
Former Reserve Bank of Australia (RBA) Governor Bernie Fraser has criticised the current RBA board for being too focused on inflation at the expense of the labour market. Fraser suggested the board should lower the cash rate, warning of “recessionary risks” that could have serious consequences for employment.
The Japanese Yen (JPY) remains depressed following comments from Bank of Japan (BoJ) board member Naoki Tamura. Tamura stated that there is “no predetermined idea about the pace of future rate hikes.” Unlike in the US and Europe, rate hikes in Japan are expected to proceed more gradually. The exact timing of when short-term rates in Japan could reach 1% will depend on economic and price conditions at the time.
Interest Rates FAQs
Financial institutions charge interest rates on loans to borrowers and pay them out as interest to savers and depositors. These are influenced by base interest rates, which are set by central banks based on economic developments. Central banks are typically mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below target, the central bank can cut base interest rates, in order to stimulate lending and boost the economy. If inflation rises substantially above 2%, the central bank typically raises base 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 rather than 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 typically set by the Federal Reserve at its FOMC meetings. It is set within a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations for the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which measures 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.
