Softer Aussie Inflation Drags AUD/JPY Near 96.50 Despite Global Trade Optimism
So here’s what’s going on with the Aussie Dollar and the Japanese Yen lately — especially for anyone watching the AUD/JPY currency pair. We saw the pair drop close to 96.50 during Wednesday’s Asian session, and the key reason behind this move was softer-than-expected inflation data coming out of Australia.
The latest numbers from the Australian Bureau of Statistics showed that the Consumer Price Index, or CPI, rose just 0.7% in the second quarter — that’s down from 0.9% in the previous quarter and below the market forecast of 0.8%. Year-over-year, inflation eased to 2.1% from 2.4%, which also came in slightly below expectations. Traders were clearly disappointed by the data, and that caused some immediate weakness in the Australian Dollar. The CPI figures suggest that inflation is easing more quickly than anticipated, and that’s got the market wondering whether the Reserve Bank of Australia will feel less urgency to keep interest rates elevated.
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Now, even though RBA Governor Michele Bullock has been sounding pretty hawkish — saying they’re not planning to cut rates until they’re really confident inflation is heading back toward that 2.5% target — the numbers themselves aren’t exactly backing her tone. So investors are waiting to see whether upcoming data, like the June retail sales report, confirms this trend or not.
On the flip side of the currency pair, the Japanese Yen has been seeing some conflicting forces. Optimism around a new U.S.-Japan trade deal — one that includes mutual 15% tariffs instead of the harsher 25% previously threatened — has been giving the Yen a bit of strength. But that strength is being held in check by political instability in Japan.
There’s been speculation about the future of Prime Minister Shigeru Ishiba after his party lost its upper house majority in recent elections. He denied any plans to step down, but uncertainty still lingers. Some analysts even think he might ramp up populist spending in an attempt to stabilize his position, which could further cloud the economic picture.
And to complicate things further, Japan's northern region of Hokkaido just experienced the first waves of a tsunami, triggered by a recent seismic event. So markets will also be watching for any fallout from that — not just humanitarian, but also financial, especially if it disrupts key infrastructure or economic activity.
All of this makes for a pretty tense atmosphere in the AUD/JPY market. We’ve got softer inflation weighing on the Aussie, a politically shaky backdrop in Japan limiting the Yen’s upside, and traders eyeing both central bank signals and geopolitical risks closely. The next moves in this pair could very well hinge on how the next few data points play out — and how stable things remain in Tokyo.
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