Australian dollar/yen rebounded from last week’s lows and recovered to the ¥112 range. Ahead of the August employment report and the RBA Board meeting, expectations of a rate hike are driving the market. The Australia-Japan interest rate differential is expected to remain wide even after a BoJ rate hike, which is likely to influence the Australian dollar’s strength against the yen.
After falling to around ¥109.67 last week, Australian dollar/yen attracted buying amid heightened tensions in the Middle East and rising energy prices, moving into the ¥112 range as five straight gains became almost certain. The rebound has been particularly pronounced since the 16th, with the pair advancing into the ¥111 range on the 17th and the ¥112 range on the 18th.
The main focus this week is the August employment report, due on the 24th. The market expects new employment to turn higher after declining in the previous report. The unemployment rate is expected to remain flat at 4.5%, making the employment data the final key checkpoint for the outlook for a rate hike at the RBA Board meeting on 29 September.
As of 1 p.m. on the 18th, the probability of an RBA rate hike was priced in at approximately 87%, and could rise further if the employment report meets expectations. If the hike is implemented, the policy rate is likely to rise to 4.60%, and the Australia-Japan interest rate differential is expected to remain wide even after a BoJ rate hike.