The yen rose on Tuesday following comments from a senior Japanese politician highlighting the pressure on the Bank of Japan to continue hiking rates. The dollar and euro remained relatively stable as traders paused amidst a week lacking economic data. However, the Australian and New Zealand dollars faced challenges after China’s unexpected interest rate cut.
Senior ruling party official Toshimitsu Motegi’s remarks emphasized the need for the Bank of Japan to communicate a clear commitment to normalizing monetary policy through consistent interest rate hikes. This stance was echoed by Digital Transformation Minister Kono Taro’s earlier call for rate increases to bolster the yen. Such political pressure has added support to the yen amidst recent interventions to strengthen the currency.
Economic Indicators and Market Reactions
While the yen benefited from political rhetoric, economists anticipate the Bank of Japan to maintain rates at the upcoming meeting. The dollar index, which tracks the U.S. currency against major peers, exhibited minimal movement at 104.33 after hitting a four-month low of 103.64. Meanwhile, the euro experienced a slight decline to $1.0874, and the British pound edged lower to $1.2915.
Trading activity remained subdued during a week devoid of significant economic data until the release of U.S. personal consumption expenditure (PCE) inflation figures later in the week. Despite U.S. President Joe Biden’s announcement regarding the electoral race, the market reaction was subdued. Some adjustment of the “Trump trade” occurred as the dollar and U.S. Treasury yields slightly decreased.
Impacts of China’s Rate Cut on Antipodean Currencies
The Australian and New Zealand dollars struggled to recover on Tuesday after China’s decision to cut key interest rates. China’s move surprised markets, signaling an effort to bolster growth in the second-largest global economy. As currencies closely linked to the Chinese yuan, the Australian and New Zealand dollars faced extended losses post the rate cut.
The Australian dollar dipped to a three-week low at $0.6622, while the New Zealand dollar weakened to its lowest level since early May at $0.5962. Rodrigo Catril, senior FX strategist at National Australia Bank, noted how these currencies reflect the realities of the current Chinese economic situation. The rate cut highlighted broader concerns about global economic stability and growth prospects.