AUD/JPY rises after two days of losses, trading around 113.60 during the European hours on Monday. The currency cross appreciates as the Australian Dollar (AUD) holds gains following the release of the interest rate decision by the People‘s Bank of China (PBOC), China’s central bank.
PBoC announced to leave its Loan Prime Rates (LPRs) unchanged, keeping the one-year and five-year LPRs at 3.00% and 3.50%, respectively. It is important to note that Australia and China are close trading partners, so any change in the Chinese economy could impact the AUD.
The AUD/JPY cross continues to advance, underpinned by the persistent interest rate differential between the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ). Expectations for additional RBA tightening remain muted, though escalating fuel costs could challenge this outlook. Markets currently price in roughly a 70% chance of one final rate increase by December, even as some investors project policy easing to begin next year. For now, the Australian central bank remains in a “wait-and-see” stance to gauge the impact of its previous tightening on sticky core inflation and a cooling domestic economy.
At the same time, market participants are exercising caution over potential FX intervention by Japanese officials. Sentiment was reinforced by Finance Minister Satsuki Katayamas warning that authorities stand ready to take “decisive action at any time” if necessary. Following a rate hike in June that brought borrowing costs to their highest level in three decades, the BoJ is set to meet again later this month. While an additional rate increase before year-end remains likely, the central bank is widely expected to hold policy steady at the upcoming July meeting.