AUD/JPY drops below 91.30 as RBA hikes OCR by 25 bps to 3.60%

• AUD/JPY has slipped sharply below 91.30 as RBA continues the 25 bps rate hike spell for the fifth time.
• RBA Lowe has pushed the OCR to 3.60% to get competitive against stubborn inflation.
• A continuation of an expansionary monetary policy is expected from the BoJ ahead.

The AUD/JPY pair has surrendered the 91.30 support as the Reserve Bank of Australia (RBA) has announced a fifth consecutive 25 basis point (bps) interest rate hike. This has pushed the Official Cash Rate (OCR) to 3.60%. A hawkish stance on the interest rate was already expected by the market participants despite the Australian Inflation has shown evidence of deceleration.

Last week, the Australian Bureau of Statistics reported a significant decline in the monthly Consumer Price Index (CPI) to 7.4%. However, a one-time decline in the economy’s inflation is insufficient to claim a pause in the policy tightening spree by any central bank. Inflationary figures are still beyond the desired rate and it demands plenty of time to reach the level of price stability.

Also, Gross Domestic Product (GDP) numbers were softened as higher rates by the RBA have forced firms to postpone their expansion plans. The Q4 GDP was expanded by 0.5%, lower than the consensus of 0.8% and the former release of 0.7%.

Analysts at Standard Chartered have recently revised the terminal rate to 4.10% from 3.50% previously. RBA Governor Philip Lower is making significant efforts in achieving price stability, however, Australian inflation is extremely sticky.

This week, a power-pack action is expected from the Bank of Japan (BoJ), which will announce the interest rate decision on Friday, A continuation of expansionary monetary policy is expected from the BoJ as Tokyo inflation dropped in February after nine consecutive increments. The BoJ needs to spurt the inflationary pressures again to maintain the Japanese Yen as competitive against rival currencies.