- The Aud/JPY weakens as Japanese receives support from the minutes of the hard -line box meeting.
- The minutes of the January BOJ policy meeting suggested that most members considered that the inflation objective of 2% is increasingly attainable.
- The Australian dollar continues to receive support as investors expect RBA to maintain interest rates without changes in April.
The AUD/JPY quotes around 94.70 during the first European hours on Tuesday, maintaining modest intra -trial losses after winning more than 1% in the previous session. The fall is attributed to a stronger Japanese (JPY) after the minutes of the Japan Bank Meeting (BOJ) of the Hard Line, which suggested discussions about the conditions for future increases in interest rates.
The minutes of the January BOJ policy meeting indicated that most members saw a growing probability of reaching the inflation objective of 2%. In addition, those responsible for politics discussed the rhythm at which the rates should increase. The governor of the Boj, Kazuo Ueda, reiterated in Parliament on Monday that the objective of the Central Bank is to ensure stable prices and that will adjust monetary relaxation accordingly if the inflation objective is available.
Despite the current fall, the Risk -sensitive aud/JPY can find support in the positive feeling of the market, promoted by expectations of less severe American commercial tariffs, advances in a peace agreement between Russia and Ukraine, and China’s economic stimulus measures.
Financial Times reported that China is considering expanding a subsidies program of billions of dollars to include services, with the aim of promoting consumption. This movement could raise investor confidence and divert JPY secure refuge flows while supporting the Australian dollar (Aud), given the strong commercial relationship between Australia and China.
In addition, Russian state media Ria Novosti report that US and Russia are ready to issue a joint statement on Tuesday after conversations in Riyadh, which covered efforts to negotiate a high sea fire in the Black Sea, among other issues.
Meanwhile, the Aud continues to receive support as investors anticipate that the Bank of the Australian Reserve (RBA) will maintain stable interest rates in April. This follows its first rate cut in four years in February, when the RBA pointed out a more cautious position than the markets expected. The Central Bank is closely monitoring US policy decisions and its possible impact on Australian inflation perspectives.
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.
