Australian Dollar Falls Against Yen Despite RBA Tone

Key Moments

Cross Under Pressure as RBA Stresses Readiness to Hike

AUD/JPY trades lower around 111.40 during Asian dealings on Tuesday, extending losses after a broadly unchanged performance in the previous session. The cross remains soft as the Australian Dollar (AUD) fails to gain traction following the publication of the Reserve Bank of Australia’s (RBA) June monetary policy Meeting Minutes, alongside the latest Purchasing Managers’ Index (PMI) figures from China.

The RBA’s June Minutes indicate that policymakers see current financial conditions as “somewhat tight” but emphasize that the board is still prepared to raise interest rates further if needed to safeguard price stability. The Minutes also underscore that the ongoing conflict in the Middle East presents a two-sided risk to the outlook, with significant upside risks to inflation and downside risks to overall economic growth.

China PMIs Beat Expectations, Signal Ongoing Expansion

Economic data from China, a key trading partner for Australia, show resilience in June. The official Manufacturing PMI edges up to 50.3 from 50.0 previously, above market expectations of 50.1 and remaining in expansion territory.

At the same time, the NBS Non-Manufacturing PMI improves to 50.2 from May’s 50.1, comfortably beating the consensus forecast of 49.9, which had anticipated a move into contraction. The latest reading points to continued expansion across China’s non-manufacturing sectors.

Yen Weakness Limits AUD/JPY Downside

The decline in AUD/JPY is cushioned by persistent softness in the Japanese Yen (JPY). The currency remains under pressure against peers amid a wide interest rate differential between Japan and other major economies. This ongoing depreciation continues to draw attention from policymakers and market participants, who are closely watching for any signs of official intervention.

Reinforcing this vigilance, Japan’s Finance Minister Satsuki Katayama stated on Tuesday that the government “will respond appropriately to currency moves at any time as needed.”

Focus on NBS Non-Manufacturing PMI

The NBS Non-Manufacturing Purchasing Managers Index (PMI), released by the China Federation of Logistics & Purchasing (CFLP) and China’s National Bureau of Statistics (NBS), serves as a leading indicator of business conditions in China’s non-manufacturing sectors, including services and construction. The index is based on monthly survey responses from senior executives at services and construction firms, comparing current-month activity with the previous month.

Readings span from 0 to 100, with a level of 50.0 indicating no change from the prior month. Values above 50 reflect general expansion in non-manufacturing activity and are typically regarded as supportive for the Renminbi (CNY), while values below 50 point to a general decline in services and real-estate activity and are viewed as negative for CNY.

Relevance for Currency Markets

The China Federation of Logistics and Purchasing (CFLP) publishes the non-manufacturing PMI each month, providing insight into the health of China’s service economy. Given the scale of China’s economy, shifts in service sector activity can influence global foreign exchange markets. Stronger non-manufacturing PMI readings indicate improving economic conditions, while weaker prints point to a deterioration in activity, with both outcomes closely monitored by traders for their potential impact on currency moves.