Australian Dollar Steadies vs Yen as China Keeps Rates

Key Moments

Australian Dollar Supported by Steady Chinese Policy

AUD/JPY is holding firm after a modest pullback in the previous session, trading near 113.30 during Asian hours on Monday. The cross remains underpinned by a resilient Australian Dollar (AUD) following the latest monetary policy decision from the People’s Bank of China (PBoC).

On Monday, the PBoC left its benchmark one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively. Given the strong trade linkages between China and Australia, the decision is providing a supportive backdrop for the Australian Dollar, which is often viewed as sensitive to developments in the Chinese economy.

RBA Stance Remains a Tailwind for AUD

Domestic monetary policy is also lending support to the AUD. After keeping the cash rate unchanged this month, Reserve Bank of Australia (RBA) Governor Michele Bullock reiterated that inflation remains elevated and cautioned that additional rate increases cannot be entirely dismissed.

Despite this hawkish signal, market participants are increasingly of the view that the RBA’s tightening phase is likely complete. Another rate hike is generally seen as a low-probability outcome unless second-quarter inflation data substantially exceed current expectations.

Yen Supported by Intervention Risks and BoJ Tone

Upside in AUD/JPY could be constrained if the Japanese Yen (JPY) draws strength from persistent concerns about potential foreign exchange intervention by Japanese authorities. This backdrop is being reinforced by recent hawkish messaging from the Bank of Japan (BoJ).

Traders are now looking toward Japanese data and policy communications for further direction. On Tuesday, markets will receive the latest Japanese Purchasing Managers’ Index (PMI) figures, followed on Wednesday by the BoJ’s Summary of Opinions from its June meeting, at which policymakers raised interest rates by 25 basis points to 1.00%. These releases are being watched for additional insight into Japan’s economic outlook and policy path.

PBoC Interest Rate Decision – Latest Details

The PBoC’s Monetary Policy Committee (MPC) typically meets on a quarterly schedule, while the Loan Prime Rate – the main reference for bank lending – is set each month. When the PBoC anticipates elevated inflation and takes a hawkish stance by raising rates, it is generally considered positive for the Renminbi (CNY). Conversely, if the central bank expects inflation to ease and opts to cut or leave rates unchanged, the decision is viewed as negative for CNY.

However, the Renminbi does not trade under a fully floating regime. Its exchange rate versus the US Dollar is largely guided by the PBoC’s daily fixing, rather than being determined solely by market forces.