RBA is expected to raise its policy rate this week, potentially changing the market pricing for additional AUD/JPY rate hikes this year.
AUD/JPY struggled to rise last week, with AUD/USD falling alongside continued dollar strength and trading remaining in the ¥112 range. From the 23rd, rising long-term yields and a corrective mood in equity markets weighed on the pair, pushing it slightly lower into the first half of the ¥111 range on the 25th, although the move did not develop into a major shift.
The RBA’s policy decision will be the focus this week, with a 0.25% rate hike to 4.60% expected. Inflation concerns expressed by Governor Bullock and other senior officials have supported expectations of a rate hike. Although a 25bp hike is viewed as almost certain, market views are divided over the timing of the next hike and the policy outlook thereafter.
Following this hike, the probability of another rate hike this year is priced into interest-rate markets at around 60%. The Australian dollar is likely to be driven by the guidance in the upcoming statement and Governor Bullock’s press conference. AUD/JPY is expected to remain in a position to move in either direction as expectations for rate hikes change.
For next week, the forecast range is ¥109.500 to ¥113.000, with unstable trading conditions expected. The RBA’s policy decision and the release of August CPI are the key events. The market is likely to trade with a focus on expectations for additional rate hikes and their potential scale.