- AUD/JPY receives support as traders expect the RBA to hold a hawkish stance regarding its policy outlook.
- Australia's Westpac Consumer Confidence increased by 2.8% in August, reversing the 1.1% decline observed in July.
- Japan's parliament will hold a special session to discuss the BoJ’s last interest rate hike.
AUD/JPY advances further for the second successive day, trading around 97.60 during the European hours on Tuesday. The AUD/JPY cross received support from the hawkish sentiment surrounding the Reserve Bank of Australia (RBA).
On Monday, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser attributed persistent inflation to weaker supply and a tight labor market. Hauser also noted that economic forecasts are surrounded by significant uncertainty.
On the data front, Australia's Westpac Consumer Confidence rose by 2.8% in August, swinging from a 1.1% fall in July. Meanwhile, the Wage Price Index remained steady with a 0.8% rise in the second quarter, slightly below the market expectation of a 0.9% increase.
The upside of the risk-sensitive Aussie Dollar could be restrained due to rising geopolitical tensions in the Middle East. Safe-haven flows might have contributed support for the Japanese Yen (JPY), limiting the upside of the AUD/JPY cross.
Israeli forces pressed on with their operations near the southern Gaza city of Khan Younis on Monday. CBC News cited Palestinian medics saying Israeli military strikes on Khan Younis on Monday killed at least 18 people.
Japan's parliament is set to hold a special session on August 23 to discuss the Bank of Japan's (BoJ) decision to raise interest rates last month. The session, organized by the lower house financial affairs committee, is expected to invite BoJ Governor Kazuo Ueda, according to government sources cited by Reuters.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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