- The Australian Dollar loses ground after the release of lower-than-expected Retail Sales.
- The Australian Retail Sales for March took an unexpected downturn, contrasting with the anticipated rise.
- Market participants will closely monitor for any potential Japanese intervention on Tuesday.
AUD/JPY edges lower on Tuesday after the release of the lower-than-expected Aussie Retail Sales, a leading indicator that has a direct correlation with inflation and growth prospects, could impact the RBA’s hawkish stance on interest rate trajectory. However, the Australian Dollar (AUD) strengthened as higher-than-expected domestic inflation data raised expectations that the Reserve Bank of Australia (RBA) may not cut interest rates soon.
Australia’s largest mortgage lender, Commonwealth Bank, has adjusted its forecast for the timing of the first interest rate cut by the Reserve Bank of Australia (RBA). They are now projecting only one cut in November, as reported by the Financial Review. CBA anticipates that the RBA could decrease the cash rate to 4.1% from 4.35% this year, with a more substantial drop to 3.1% by 2025. Gareth Aird, CBA’s head of Australian economics, stated, “We have penciled in one 25 basis point rate cut in each quarter over 2025.”
On the Japanese side, market participants will remain vigilant for potential Japanese intervention on Tuesday, following reports of Tokyo’s involvement in the currency market on Monday, which propelled the Japanese Yen (JPY), according to Reuters. Lower-than-expected domestic Retail Trade data released on Tuesday support the dovish stance of the Bank of Japan (BOJ). Additionally, expectations for a sustained significant interest rate differential between Japan and other nations suggest that the trajectory of the JPY is biased toward further depreciation.
Daily Digest Market Movers: AUD/JPY edges lower after softer Retail Sales
- The seasonally adjusted Australian Retail Sales dropped 0.4% MoM in March, compared to the expected increase of 0.2% and the previous growth of 0.3%.
- China’s NBS Manufacturing Purchasing Managers Index (PMI) fell to 50.4 in April, against the 50.8 prior. The reading was better than the expected reading of 50.3. Non-manufacturing PMI declined to 51.2, as expected. The previous reading was 53.0 in March.
- Japan’s Retail Trade increased by 1.2% year-over-year in March, which was lower than the expected increase of 2.5% and the previous increase of 4.7%. The seasonally adjusted Retail Trade (MoM) decreased by 1.2%, against the expected rise of 0.6%.
- Australian shares kicked off Tuesday with little change as investors paused ahead of the upcoming US Federal Reserve rates decision on Wednesday. Among the 11 sectors, only materials showed gains, while the rest remained relatively unchanged.
- Masato Kanda, Japan’s senior currency diplomat, made pointed comments regarding the currency’s impact on import prices, emphasizing its significant influence. He highlighted the readiness of authorities to take action around the clock to address currency-related matters, as per a Reuters report.
- BoJ Governor Kazuo Ueda provided insights into the central bank’s decision to maintain the status quo during the post-policy meeting press conference on Friday. Ueda outlined that the BoJ will adjust the degree of monetary easing if the underlying inflation rate rises. Additionally, he emphasized that easy financial conditions will be maintained for the time being, indicating the BoJ’s commitment to supporting economic recovery and stability through accommodative monetary measures.
Technical Analysis: AUD/JPY drops toward 102.00
The AUD/JPY traded around 102.50 on Tuesday, hovering above the lower boundary of the ascending wedge on a daily chart. Additionally, the 14-day Relative Strength Index (RSI) is above the 50-level, reinforcing the bullish sentiment.
The immediate resistance is observed at the psychological level of 105.00, coinciding with the upper boundary of the wedge. A breakthrough above this area could propel the AUD/JPY cross to test the highest level of 105.43 recorded in April 2013.
On the downside, immediate support for the AUD/JPY pair might be encountered at the psychological level of 102.00, aligning with the lower boundary of the wedge. If the pair breaches below this level, it could lead to a further decline toward the nine-day Exponential Moving Average (EMA) at 101.51.
(This story was corrected on April 30 at 05:30 GMT to say, in the technical analysis, the lower boundary of the ascending wedge, not the triangle.)
AUD/JPY: Daily Chart
Australian Dollar price this week
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies this week. The Australian Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | -0.26% | 0.18% | 0.14% | -0.95% | -0.03% | -0.23% | |
| EUR | -0.04% | -0.31% | 0.16% | 0.09% | -1.05% | -0.06% | -0.25% | |
| GBP | 0.29% | 0.31% | 0.46% | 0.41% | -0.66% | 0.25% | 0.06% | |
| CAD | -0.19% | -0.15% | -0.45% | -0.05% | -1.13% | -0.21% | -0.43% | |
| AUD | -0.13% | -0.10% | -0.43% | 0.05% | -1.08% | -0.16% | -0.35% | |
| JPY | 0.94% | 0.97% | 0.66% | 1.11% | 1.05% | 0.91% | 0.71% | |
| NZD | 0.03% | 0.07% | -0.24% | 0.21% | 0.16% | -0.92% | -0.20% | |
| CHF | 0.23% | 0.27% | -0.05% | 0.40% | 0.34% | -0.73% | 0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
