- The Aud/JPy lows as the Japanese yen recovers its losses due to the hard line tone around the lobby of the Boj’s rates.
- The JPY can lose ground since Japan could adjust the emission of government debt.
- The National Australia Bank hopes that RBA can adopt a less moderate position in future policy meetings.
The Aud/JPY stops its three -day winning streak, quoting around 92.90 during the European hours on Wednesday. The crossing of currencies is depreciated as Japanese (JPY) gains ground, possibly driven by the expectations that the Bank of Japan (Boj) will continue to increase interest rates in the midst of growing inflation in Japan.
However, the AUD/JPY could recover ground since Japanese could face difficulties again, since Japan has pointed out possible cuts in government debt emission. On Monday, the Japan Ministry of Finance requested comments from the market participants about bond issuance and the current market situation, according to Bloomberg.
On Tuesday, Reuters reported that the Ministry of Finance of Japan will consider reducing its issuance of superlargo bonds to adjust the composition of its bond program for the current fiscal year. On Wednesday, the Minister of Finance of Japan, Shunichi Kato, said that the government is concerned about the recent increase in yields and will closely monitor bond market situations.
The Aud/JPY crossing also faced challenges since the Australian dollar (AUD) fought despite a publicly consumer price index (CPI) higher than expected on Wednesday. The Australian Statistics Office reported that monthly inflation, in the price of a fixed basket of goods and services acquired by domestic consumers, remained stable with an increase of 2.4% interannual in April, higher than the increase of 2.3% expected.
National Australia Bank (NAB) anticipates that the Australian Reserve Bank (RBA) could adopt a less moderate posture and expects the Central Bank to return the cash rate to a neutral stance in the coming months. However, the NAB has raised the expectation of the terminal rate to 3.1% from the previous 2.6%.
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
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.
