The AUD/JPY currency pair hovered above a fresh 8-week low of 111.51 on Wednesday, as the Australian Dollar demonstrated a rather muted reaction to the latest inflation figures.
Data by the Australian Bureau of Statistics indicated that consumer price pressures eased more sharply than anticipated in May, providing some breathing room for policy makers. Headline Consumer Price Index increased 4.0% year-over-year, down from 4.2% YoY previously and below the 4.4% consensus forecast.
On a month-over-month basis, the CPI fell 0.7%, reversing the prior 0.4% rise and coming in weaker than the projected 0.3% decline. The Reserve Bank of Australia’s (RBA) preferred core gauge, the Trimmed Mean CPI, rose 0.4% on the month and 3.6% compared to a year earlier.
The softer inflation data reduced the urgency for additional RBA tightening, while also limiting upside potential for the Australian Dollar.
At the same time, rising expectations of BoJ policy normalization and the threat of direct intervention by Japanese authorities have lent support to the Japanese Yen.
On Monday, Finance Minister Satsuki Katayama said that officials were prepared to respond appropriately to currency fluctuations at any time. Those remarks were reinforced on Tuesday when Chief Cabinet Secretary Minoru Kihara reiterated that the government would take decisive action against volatile foreign exchange moves if necessary.
This kept market participants alert to the possibility of official Yen-buying operations.
The Bank of Japan’s Summary of Opinions from its June meeting showed that most board members favored raising the policy rate. They highlighted that inflation risks were rising and that the underlying CPI was steadily moving toward the 2% objective.
The AUD/JPY currency pair was last down 0.06% on the day to trade at 111.63.
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