|

AUD/JPY edges lower to near 98.00 following BoJ Ueda’s speech, Fed’s Powell awaited

  • AUD/JPY loses gains as BoJ’s Ueda indicated no change in policy easing stance if the upcoming data align with forecasts.
  • BoJ Governor Ueda stated that he is not considering selling long-term Japanese government bonds as a tool for adjusting rates.
  • The Australian Dollar receives support from the improved risk aversion ahead of the Fed Powell’s speech.

AUD/JPY retraces its recent gains from the previous two days, trading around 97.80 during the early European hours on Friday. The Japanese Yen (JPY) strengthens following the speech by Bank of Japan (BoJ) Governor Kazuo Ueda in Parliament on Friday. Ueda stated that "the BoJ raised rates in July as the economy and inflation moved largely in line with forecasts."

BoJ Governor Ueda also indicated that there would be no change in the stance on adjusting monetary easing if the economy and inflation continue to align with forecasts. Ueda noted that recent BoJ policy decisions have been appropriate and warned that outlining the future policy path could lead to unnecessary speculation.

Ueda also stated that he is “not considering selling long-term Japanese government bonds (JGBs) as a tool for adjusting interest rates.” He noted that any reduction in JGB purchases would only account for about 7-8% of the balance sheet, which is a relatively small decrease. Ueda added that if the economy aligns with their projections, there could be a phase where they might adjust interest rates slightly further.

The downside of the AUD/JPY cross could be restrained as the Australian Dollar (AUD) receives support from improved risk-on sentiment ahead of the US Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Symposium scheduled later on Friday. Powell may deliver a statement about the possibility of interest rate cuts in the United States (US), which is highly anticipated by market participants.

The Aussie Dollar could receive support from the hawkish mood surrounding the Reserve Bank of Australia (RBA) about its policy outlook. RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise rates again to combat inflation if needed. Additionally, RBA's August Meeting Minutes suggested that the cash rate might stay unchanged for an extended period.

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.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

More from Akhtar Faruqui
Share:

Editor's Picks

EUR/USD remains heavy near 1.1600 after hot EU inflation data

EUR/USD remains heavily offered near 1.1600, six-week lows, in the European session on Tuesday. The pair fails to find any inspiration from a surprise pick up in Eurozone inflation for February, as the US Dollar continues to attract safe haven flows amid escalating geopolitical tensions in the Middle East. 

GBP/USD attacks 1.3300, refreshing three-month lows

GBP/USD is deep in the red near 1.3300, accelerating its downside to renew three-month lows in European trading on Tuesday. The ongoing escalation in the Iran war, combined with rising Oil prices, weighs negatively on the higher-yielding Pound Sterling as the US Dollar capitalizes on increased haven demand.

Gold falls below $5,300 as stronger USD counter Middle East woes

Gold attracts some intraday selling and falls below $5,300 on Tuesday. The US Dollar climbs to a fresh high since January 20 and turns out to be a key factor exerting downward pressure on the commodity. However, concerns about a broader regional conflict in the Middle East continue to weigh on investors' sentiment and underpin demand for the traditional safe-haven bullion.

Stellar risks deeper losses as derivatives metrics turn negative

Stellar is trading red below $0.16 at the time of writing on Tuesday, after a slight recovery the previous day. Weakening derivatives data caps the recovery, while an unfavorable technical outlook projects a deeper correction for the XLM token in the upcoming days.

Middle East conflict ramps up a gear as energy price spike rips through markets

It’s another risk off day as geopolitical headwinds continue to batter financial markets. Although markets calmed during the US session and US stocks managed to post gains on Monday, this has not fed through to the European session, and stocks and bonds are sharply lower for a second day.

Hyperliquid Price Forecast: HYPE rises on commodities demand amid US-Iran war

Hyperliquid (HYPE) steadies above $33 at press time on Tuesday, marking its fourth consecutive day of recovery in a broadly volatile market due to the ongoing US-Israel strikes on Iran.