Australian dollar at 2 month high before RBA's monetary policy meeting

7 May 2024 , 10:30 AM

Even after two rounds of alleged dollar-selling intervention last week,  the yen continued to weaken against the dollar on Tuesday due to widening interest rate differentials.

The Australian dollar was trading around a two-month high against the US dollar as traders anticipated that Reserve Bank of Australia Governor Michele Bullock will maintain stable interest rates later in the day.

In early Asian trade, the U.S. dollar increased by 0.22% to 154.235 yen, continuing its 0.58% increase from Monday.

It fell below 151.86 yen on Friday for the first time since April 10 as losses were exacerbated by weaker-than-expected monthly U.S. jobs data, which came after data from the Bank of Japan revealed that state intervention may have totaled roughly 9 trillion yen ($58.37 billion).

The government “will continue to take the same firm approach” to disorderly yen fluctuations, as stated by top currency diplomat Masato Kanda on Tuesday. Japan’s Ministry of Finance has refrained from commenting on whether it was behind dollar selling.

Nonetheless, there is a huge 370 basis point difference between the ultra-low Japanese long-term yields and their U.S. counterparts, with the Federal Reserve expected to take some time to decrease rates and the BOJ taking a cautious approach to tightening after its first-rate hike since 2007 in March.

After falling as low as 104.52 on Friday, the U.S. dollar index, which compares the value of the dollar to six important rivals, including the yen, sterling, and euro, was barely moved at 105.13.

Sterling was unchanged at $1.2565, while the euro remained stable at $1.0765.

The Australian dollar increased by 0.17% to $0.6636, moving back toward Friday’s high of $0.6650, a level last observed on March 8.

In the face of persistently rising inflation, all but one of the 37 economists polled for a Reuters survey predicted that the RBA would maintain current rates, with the other forecasting a quarter point raise.

Policymakers moderated their tightening stance at the RBA’s most recent meeting in mid-March. Bullock refrained from stating whether policy has moved to neutral, citing risks as “finely balanced,” and she postponed further rate decreases.

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