AUD/JPY scales 12-week peak as RBA hints rate cuts still unlikely

The AUD/JPY currency pair advanced to a fresh 12-week high on Tuesday, after the Reserve Bank of Australia reinforced bets that interest rate cuts were likely still some way off.

The minutes of the RBA’s February policy meeting revealed the central bank required more time to be confident inflation was easing before it could rule out another rate hike.

The minutes showed RBA policy makers considered another 25 basis point rate hike, but decided to keep borrowing costs steady as progress had been made on inflation.

However, policy makers “noted that it would take some time before they could have sufficient confidence that inflation would return to target within a reasonable timeframe,” the minutes stated.

The RBA Board expects inflation to go back to the target range of 2%-3% in late 2025 and decelerate further to the midpoint of that range in 2026.

Markets are pricing only 36 basis points of rate cuts by the Reserve Bank of Australia this year. A rate cut is not likely to occur until August or September, futures data showed.

“We didn’t learn much that was new from the February minutes,” Taylor Nugent, senior economist at National Australia Bank, was quoted as saying by Reuters.

“We expect the board to take a cautious approach to easing policy settings. By November, the combination of higher unemployment and inflation nearing the target range should be enough for the RBA to begin to move.”

Meanwhile, Japan’s economy surprisingly entered a recession in the fourth quarter of 2023 due to weak consumption and capital expenditure. This urged market players to reassess the chances of a near-term exit from the Bank of Japan’s ultra-easy monetary policy.

As of 9:51 GMT on Tuesday the AUD/JPY currency pair was edging up 0.31% to trade at 98.434. Earlier in the session, the minor Forex pair went up as high as 98.440. The latter has been the pair’s strongest level since November 27th 2023 (98.494).