- AUD/JPY depreciates as risk aversion increases due to rising fears over the Chinese economy.
- Traders await RBA Governor Michele Bullock’s speech to gather more insights into the central bank's policy stance.
- Japan will allocate ¥989 billion to fund energy subsidies in response to rising energy costs.
AUD/JPY halts its four-day winning streak, trading around 98.40 during the European session on Tuesday. This downside of the AUD/JPY cross is attributed to rising risk aversion as traders adopt caution due to concerns mounting over China’s economic woes.
Traders assess July manufacturing PMI data from China, a key trading partner of Australia. Official figures indicated the sharpest contraction in factory activity in six months, while private survey readings suggested that the manufacturing sector had expanded for the seventh time this year.
Traders are now focusing on Australia's Q2 Gross Domestic Product (GDP) and July Trade Balance data, as well as an upcoming speech by Reserve Bank of Australia (RBA) Governor Michele Bullock later in the week, to gather more insights into the central bank's hawkish stance on monetary policy.
On Tuesday, Japan announced the allocation of ¥989 billion to fund energy subsidies in response to rising energy costs and the resulting cost-of-living pressures. This government intervention could potentially contribute to inflation.
The Bank of Japan's (BoJ) hawkish monetary policy stance has been further reinforced by a recent increase in Tokyo's inflation. Consumer Price Index (CPI) increased to 2.6% year-on-year in August, up from 2.2% in July. Core CPI also rose to 1.6% YoY in August, compared to the previous 1.5%.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
![AUD/USD: Be careful with the 200-day SMA](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/AUDUSD/australian-currency-23690700_XtraSmall.jpg)
AUD/USD: Be careful with the 200-day SMA
AUD/USD plummeted to multi-day lows and threatened the 0.6700 region on the back of the pick-up in the US Dollar, while omnipresent concerns around China and lower commodity prices also added to the sour mood around the Aussie Dollar.
![EUR/USD now looks at a probable test of 1.1000](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/money-59004818_XtraSmall.jpg)
EUR/USD now looks at a probable test of 1.1000
EUR/USD suffered the return of the strong sentiment around the Greenback and receded to the 1.1030 zone ahead of key data releases in the US labour market later in the week.
![Gold bounces from intraday lows, risks another leg south](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/Gold_Bar_XAU_Precious_Metal_XtraSmall.jpg)
Gold bounces from intraday lows, risks another leg south
Gold continues to stretch lower on Tuesday and trades at its weakest level in nearly two weeks below $2,480. Although the US Treasury bond yields decline toward 3.8%, XAU/USD struggles to find a foothold amid persistent US Dollar resilience.
![XRP breaks past key resistance, Ripple announces plans for Ethereum-compatible smart contracts](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/cryptos_XtraSmall.jpg)
XRP breaks past key resistance, Ripple announces plans for Ethereum-compatible smart contracts
Ripple (XRP), a cross-border payment remittance firm, made several key announcements in Japan and Korea on September 3. One of the key announcements was the plan for an Ethereum-compatible sidechain on the XRP Ledger.
![Week ahead: US labour data and the BoC rate announcement in focus](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/working-america-gm173864680-9188844_XtraSmall.jpg)
Week ahead: US labour data and the BoC rate announcement in focus
With US Federal Reserve Chair Jerome Powell’s recent speech at the Jackson Hole Symposium confirming that it is time to begin easing policy as well as underlining the importance of the jobs market, this week’s jobs data may help determine how the Fed approaches its easing cycle.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.