- AUD/JPY recovers its daily losses, possibly driven by a risk-on mood amid the expected Federal Reserve interest rate cut.
- The Japanese Yen receives support from the hawkish sentiment surrounding the BoJ’s policy outlook.
- The Australian Dollar may appreciate due to the Reserve Bank of Australia’s aggressive monetary policy approach.
AUD/JPY trims its intraday losses, trading around 96.10 during the European hours on Wednesday. However, the AUD/JPY cross may hold losses as the Japanese Yen (JPY) receives support from the hawkish sentiment surrounding the Bank of Japan’s (BoJ) policy outlook.
Traders await the US Federal Reserve’s (Fed) interest rate decision scheduled to be released later in the North American session. The focus will shift toward the BoJ policy decision on Friday, with expectations of keeping rates unchanged while leaving the possibility open for further rate hikes.
Japanese Finance Minister Shunichi Suzuki stated on Tuesday that rapid foreign exchange (FX) fluctuations are undesirable. Suzuki emphasized that officials will closely monitor how FX movements affect the Japanese economy and people's livelihoods. The government will continue to assess the impact of a stronger Japanese Yen and respond accordingly, according to Reuters.
The downside of the AUD/JPY cross could be restrained as the Australian Dollar (AUD) receives support from the Reserve Bank of Australia's (RBA) hawkish stance on monetary policy outlook. RBA Governor Michele Bullock stated that it is premature to consider rate cuts due to persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.
Investors are now awaiting Australia's jobs data, including Employment Change and the Unemployment Rate for August, set to be released on Thursday. This report may provide insights into the health of the labor market and may influence expectations regarding the future direction of domestic monetary policy.
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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