- 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.
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).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate, and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.