|

Australian Dollar slips against Japanese Yen due to increased risk aversion

  • AUD/JPY depreciates as escalating Middle East conflicts and tanker attacks have weighed heavily on global risk sentiment.
  • Hawkish warnings from RBA officials keep expectations alive for another interest rate hike this month.
  • Deutsche Bank highlighted that BoJ's Kazuyuki Masu struck a hawkish tone, stating the central bank will keep raising rates.

AUD/JPY extends its losing streak for the fourth consecutive day, trading around 110.70 during European hours on Thursday. The currency cross depreciates as the Australian Dollar (AUD) faces challenges amid escalating Middle East tensions that have weighed heavily on global risk sentiment.

However, recent developments show that Iran and the United States (US) struck tankers in the biggest wave of attacks on shipping since the war began, threatening to worsen the disruption of energy supplies from the Gulf. This pushed oil prices higher, intensifying inflationary pressures that have already started feeding into Australia’s consumer prices.

Consequently, expectations have grown regarding a fourth Reserve Bank of Australia (RBA) interest rate hike this year, a factor that could limit the AUD’s downside. Market participants are becoming increasingly confident in this trajectory, following warnings of upside inflation risks from Deputy Governor Andrew Hauser during an ABC interview on Tuesday.

Reinforcing this outlook, RBA Assistant Governor Sarah Hunter stated on Tuesday that the central bank may need to raise interest rates again if inflation proves more persistent than expected, keeping alive the prospect of another hike at its upcoming September meeting.

Global bond yields push toward multi-year highs

Deutsche Bank highlights that the recent back-up in global rates is not confined to Japan, noting that “Australia’s 10yr yield (+6.6bps) … is up to a post-2011 high of 5.27%, whilst Japan’s 10yr yield (+5.4bps) is up to 2.93%.” The bank points out that these moves underscore how both Australian and Japanese long-end yields are now trading near multi-year peaks as markets continue to reprice the path of policy normalisation.

BoJ’s Masu underlines steady path of policy normalisation

Deutsche Bank highlights that Bank of Japan board member Kazuyuki Masu struck a resolutely hawkish tone overnight, indicating that the central bank would “continue to raise the policy interest rate” as it advances its normalisation agenda. They note that Masu framed the policy objective in terms of price stability, stressing that “what is most vital from now on is to ensure that the underlying inflation rate does not significantly exceed 2%.”

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

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold treads water around $4,000

Gold prices maintain its offered stance in place at the end of the week, hovering around the key $4,000 threshold per troy ounce. The persistent selling bias in the precious metal comes amid decent gains in the US Dollar and an acceptable rebound in US Treasury yields across the curve, all alongside further upside traction in crude oil prices.

Crypto Today: Bitcoin holds the 50-day EMA as Ethereum and XRP face structural resistance

Bitcoin gradually ticks up on Friday, trading above $81,000. The Crypto King has recently defended structural support near $80,000, reinforcing the prevailing bullish outlook. Ethereum similarly edges higher above $2,400, while Ripple trades above $1.32 after testing support around $1.30.

The French bond panic is overdone. Here's what the market is misreading 

France's 10-year government bond yield has climbed above 5%, reigniting fears of a sovereign debt crisis in the Eurozone. With public debt exceeding €3.5 trillion, persistent budget deficits and a fragmented political landscape, investors are increasingly questioning the French government's ability to stabilize its finances.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.