AUD/JPY trades with modest losses above 95.00, remains close to two-month top set on Tuesday
- AUD/JPY retreats from a nearly two-month high set on Tuesday amid notable JPY strength.
- Bets that the BoJ will hike interest rates again in 2025 continue to act as a tailwind for the JPY.
- Trade optimism and reduced bets for aggressive RBA rate cuts could limit losses for the cross.
The AUD/JPY cross attracts some sellers during the Asian session on Wednesday, and for now, it seems to have snapped a two-day winning streak to the 95.65 area, or a nearly two-month high touched the previous day. Spot prices currently trade around the 95.15 region, down nearly 0.30% for the day amid a broadly stronger Japanese Yen (JPY).
Bank of Japan (BoJ) Deputy Governor Shinichi Uchida reiterated on Tuesday that the central bank will keep raising interest rates if the economy and prices improve as projected. This comes on top of fears of broader, more entrenched price increases in Japan and backs the case for further policy normalization by the BoJ, which acts as a tailwind for the JPY and exerts some pressure on the AUD/JPY cross.
The Australian Dollar (AUD), on the other hand, draws support from a hotter-than-expected domestic Wage Price Index. Adding to this, the de-escalation of the US-China trade war tempers bets for more aggressive rate cuts by the Reserve Bank of Australia (RBA). Apart from this, a softer US Dollar (USD) benefits the AUD and holds back traders from placing aggressive bearish bets around the AUD/JPY cross.
The aforementioned fundamental backdrop supports prospects for the emergence of some dip-buyers at lower levels, warranting some caution before confirming that spot prices have topped out in the near term. Traders now look forward to the release of the crucial monthly employment report from Australia during the Asian session on Thursday, which should provide a fresh impetus to the AUD/JPY cross.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
