The Australian Dollar (AUD) and Japanese Yen (JPY) have moved in opposite directions so far this week due to the effects from Trump’s latest tariff measures and the RBA’s (Reserve Bank of Australia) surprise decision to hold rates steady.
On Tuesday, the RBA decided to play it safe regarding monetary policy by leaving interest rates on hold at 3.85%, which caught the market off-guard and sent the AUD higher. With core inflation sitting at the upper end of the RBA’s 2-3% target band, the central bank is hesitant to cut rates until further evidence arrives which may (or may not) show that CPI continues to behave. This will likely come in the form of Q2 CPI figures (due at the end of July). Assuming there are no upside surprises in the quarterly inflation data, the RBA looks set to cut when it next meets in August. So right now, it looks like the rate cut has been delayed rather than abandoned, meaning that the AUD’s resurgence could be short-lived.
Trump’s intent to apply 25% tariffs to Japan from August 1st hasn’t done the yen any favours with the currency falling on export concerns. The Japanese currency has come under renewed selling pressure this week against most of its peers with Trump’s tariff letters (sent to 14 countries including Japan) bringing tariff worries to the fore again.
These contrasting performances from the Aussie Dollar and Japanese Yen have meant that the cross rate (AUDJPY) has gained 1% over the last 24 hours. But with the reciprocal tariff deadline shifted from July 9th to August 1st, there is breathing room for trade negotiations between the US and Japan which could still lead to more favourably tariff levels. So, trade headlines will continue to swing the currency market as we approach the new deadline of August 1st.
Elsewhere, gold has been losing steam due to moves higher in the USD and treasury yields. The Dollar Index (DXY) has moved higher to 97.50 (up from 96.90 one week ago), while the 10-year treasury yield has touched 4.4% (its highest level in two weeks). Another factor which is not helping gold is that traders seem less perturbed about Trump’s latest tariff threats, meaning that safe-haven demand has been largely sidelined. Gold currently sits at $3301, ahead of support initially at $3282 followed by the firmer support level of $3256. Any breach of this could open a larger slide towards $3200. On the top side, resistance sits at $3341. A pullback in the USD or bond yields, or a pick-up in safe haven demand may be required for gold to start tracking higher again.
Oil has weathered the news of further OPEC+ production increases quite well. The cartel announced that they will be bumping up production by a further 548k bpd (barrels per day) come August, but favourable, seasonal demand dynamics have meant that crude has climbed 1% over the last 5 days. But there remain doubts over whether oil prices can remain resilient in the face of continued supply increases once the northern hemisphere summer season finishes.
For the rest of the week, the FOMC minutes release will be in focus with traders not expecting a near-term rate cut from the US central bank given the relatively strong jobs figures released last Friday (with NFP producing an upside beat). Meanwhile, Trump’s latest tariff postures will continue to drive the market mood, but perhaps not with the same levels of volatility witnessed earlier in the year. Traders continue to calibrate their response to the ongoing tariff story, with market reactions to whatever the latest tariff proclamations happen to be becoming less pronounced (as evidenced by the subdued market reaction to Trump sending out his tariff letters to 14 countries). Let’s see if the market can maintain the unfazed reaction beyond the August 1st tariff deadline.
