Aussie Dollar Rallies Against Yen as Oil & RBA Bets Rise

Key Moments

Oil-Driven Pressure on Yen Supports AUD/JPY

AUD/JPY gained for a second consecutive session, with the pair trading near 110.40 during European hours on Tuesday. The move reflected renewed selling pressure on the Japanese Yen (JPY) as higher global oil prices increased import costs for Japan’s energy-reliant economy.

Elevated energy prices have been a persistent challenge for Japan, and the latest rise in crude costs added to currency headwinds, providing support for the Australian Dollar (AUD) against the Yen in the cross.

Potential Constraints from BoJ Expectations and Positioning

Despite the recent upside, further gains in AUD/JPY could face resistance. The JPY may find a floor as investors look ahead to the possibility of more forceful monetary tightening by the Bank of Japan (BoJ).

In addition, the ongoing unwinding of global carry trades and emerging signs that Japanese investors are gradually bringing overseas capital back home have helped create a more stable backdrop for the Yen. These dynamics offer a counterweight to oil-driven weakness and may limit the pace or extent of further AUD/JPY appreciation.

RBA Outlook Lends Support to Australian Dollar

The cross has also been buoyed by expectations that the Reserve Bank of Australia (RBA) might raise interest rates later this month. Analysts at Rabobank pointed to recent commentary from the central bank as reinforcing a more restrictive policy stance.

Rabobank analysts noted that the RBA has “just seen Andrew Hauser give a hawkish speech,” a shift that has “markets thinking of hikes this month and in November.” They added that this more restrictive approach is “very much what the US Treasury would like to see – plus a lot more action on non-housing parts of the economy,” emphasizing that tighter policy, especially outside the housing sector, aligns with U.S. policy preferences.

China Data Mixed for Key Australian Trading Partner

Economic figures from China, a major trading partner for Australia, presented a mixed picture.

Retail Sales in China increased 0.4% year-over-year in August, falling short of the 0.8% rise that had been expected and slowing from the 0.6% growth recorded in July. By contrast, Industrial Production expanded 5.2% year-over-year, above the 4.8% consensus forecast and improving from 4.5% previously.

Fixed Asset Investment declined 7.2% year-over-year in August, matching expectations. The prior reading showed a 6.7% year-over-year drop. These data points are closely watched by market participants given China’s role as a key export destination and economic partner for Australia.