- AUD/JPY advances after the release of key economic data from China on Monday.
- China announced plans featuring measures to boost wages and stabilize stock and real estate markets.
- The BoJ is expected to keep its current policy unchanged at its upcoming meeting on Wednesday.
AUD/JPY continues to gain ground for the second successive day, trading around 94.20 during the Asian hours on Monday. The currency cross appreciates as the Australian Dollar (AUD) gains ground against its peers following the release of China’s economic data on Monday. Any developments surrounding the Chinese stimulus plan could boost the AUD, as China is a major trading partner to Australia.
China's retail sales grew by 4% year-over-year in January-February, improving from December’s 3.7% increase. Meanwhile, industrial production rose 5.9% YoY during the same period, exceeding the 5.3% forecast but slightly lower than the previous reading of 6.2%.
The risk-sensitive AUD/JPY cross receives support as the Australian Dollar gains ground and the Japanese Yen (JPY) loses ground amid improving risk sentiment as China unveiled a special action plan over the weekend to revive consumption. The plan includes measures to increase wages, boost household spending, and stabilize stock and real estate markets.
However, the AUD/JPY cross may face upside limitations as the JPY could strengthen amid firm expectations that the Bank of Japan (BoJ) will continue raising interest rates this year. Still, the central bank is widely anticipated to maintain its current policy at its upcoming meeting on Wednesday.
Last week, major Japanese firms agreed to substantial wage increases for the third consecutive year, aiming to support workers against inflation and address labor shortages. Higher wages are expected to drive consumer spending, fuel inflation, and give the BoJ more flexibility for future rate hikes.
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.
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