- The AUD/JPY can depreciate as Japanese is strengthened, ignoring the weakest internal data.
- Japan preliminary GDP for Q1 2025 showed a quarterly contraction of 0.2% and an annualized 0.7% fall.
- The most solid Australian employment data led markets to reduce the expectations of RBA fees for 2025 to 75 basic points.
The AUD/JPY remains subdued around 93.20 during Friday’s Asian negotiation hours, extending its losses for third consecutive session. The crossing of currencies has renounced their daily gains as Japanese (JPY) is appreciated despite the weakest internal data. The preliminary data of Japan’s GDP for Q1 2025 showed a quarterly contraction of 0.2%, compared to a 0.6%growth in Q4 2024. In annualized terms, GDP fell 0.7%, below the expectations of a 0.2%drop.
Despite the weak economic impression, the Japanese Yen (JPY) is backed by the growing expectations that the Bank of Japan (Boj) can increase interest rates again in 2025. In addition, the prospects of a commercial agreement between the US and Japan and the recent comments of the government have helped support the Yen.
Japan’s Minister of Economy, Ryosei Akazawa, reaffirmed Japan’s intention to press the US for a review of tariffs and promised liquidity help for affected companies. The Minister of Finance, Shunichi Kato, also emphasized the plans to meet with the US Treasury Secretary, Scott Besent, to address the volatility of the exchange rate, stressing that excessive movements in the exchange rate could damage the economy of Japan.
The Australian dollar (AUD) can gain traction, driven by the most solid labor market data than expected on Thursday, which helped moderate the expectations of aggressive rate cuts by the Bank of the Australian Reserve (RBA).
The markets have now reduced their expectations of RBA features to 75 basic points in total by 2025, below more than 100 basic points projected only a few weeks ago. Even so, caution can prevail as investors prepare for the next RBA policy decision next week, where a 25 basic points are widely anticipated to 3.85%, which could limit more AUD profits.
The Aud, sensitive to risk, is also receiving support from the improvement in global commercial feeling. A preliminary agreement between the US and China aims to significantly reduce tariffs: US tariffs on Chinese goods will fall from 145% to 30%, while China will reduce tariffs on US imports from 125% to 10%. In addition, the renewed optimism on a possible nuclear agreement between the US and Iran has raised the feeling of the market even more.
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.
