AUD/JPY extends V-shape recovery to near 93.40 in hopes of more rate hikes by RBA

• AUD/JPY has climbed to near 93.40 as the RBA is expected to raise interest rates further.
• Higher interest rates from the RBA are impacting the economic prospects of Australia.
• The BoJ is consistently making efforts for pushing wages and demand higher through sheer monetary stimulus.

The AUD/JPY pair showed a V-shape recovery from the critical support of 93.00 in the London session. The risk barometer has stretched its V-shape recovery to near 93.40 as the street is hoping that the Reserve Bank of Australia (RBA) is going to raise interest rates further.

Australian inflation has shown persistence as the monthly Consumer Price Index (CPI) indicator has jumped to 6.8% from the former release of 6.4%, which is sufficient to support more interest rate hikes from the RBA. In June’s monetary policy meeting, RBA Governor Philip Lowe stated that more interest rate hikes are appropriate to bring down stubborn inflation. The commentary came after RBA Lowe announced a 25 basis point rate hike surprisingly to 4.10%

A poll from Reuters showed that the RBA would raise its Official Cash Rate (OCR) further by 25 basis points (bps) to 4.35%.

Meanwhile, higher interest rates from the RBA are impacting the economic prospects of Australia. Australian GDP has dropped in the first quarter of CY2023 and their surplus Trade Balance has slipped due to weak global demand.

In the Asian region, a few Chinese biggest banks lowered rates on a range of deposit products, responding to the government’s call for help in boosting growth in the world’s second-largest economy. This might accelerate recovery in the Chinese economy and support its vulnerable real estate. It is worth noting that Australia is the leading trading partner of China and monetary stimulus in China would support the Australian Dollar.

In Japan, recovery could be higher led by the Bank of Japan’s (BoJ) efforts of pushing wages and demand higher through sheer monetary stimulus. Economists at Societe Generale cited the most resilient major economy maybe Japan, and that should provide some support for the yen as the market waits for next week’s BoJ meeting.