AUD/JPY extends winning streak to near 99.90 on expectations of RBA avoiding rate cuts

• AUD/JPY appreciates due to the likelihood of RBA to avoid rate cuts.
• Australia’s 10-year bond yield surged to 4.1%, marking its highest level in over a month.
• The diminished geopolitical tension could weaken the safe-haven JPY.

AUD/JPY continues to move in the positive direction, rising to near 99.90 during the European session on Monday. This rise is attributed to the appreciation of the Australian Dollar (AUD), supported by gains in the domestic equity market. The ASX 200 Index experienced upward momentum during the opening session of the week, particularly fueled by a surge in tech stocks.

Additionally, Australia’s 10-year government bond yield climbed to nearly 4.1%, reaching over one-month highs. This increase follows a rally in US bond yields, driven by stronger-than-expected US jobs data. Speculation has arisen that the Federal Reserve may maintain higher interest rates for an extended period.

Investors are growing increasingly skeptical about the need for the Reserve Bank of Australia (RBA) to cut interest rates at any point throughout 2024. This sentiment has been reinforced by more positive data emerging from the US, which has strengthened expectations that borrowing costs in the world’s largest economy will remain elevated for an extended period.

In the previous week, unchanged Final Retail Sales and downbeat Trade Balance data from Australia exerted downward pressure on the Australian Dollar (AUD). Market participants are closely monitoring the prices of copper and oil, as further appreciation could potentially provide support for the Australian Dollar (AUD), consequently, underpinning the AUD/JPY cross.

The Japanese Yen (JPY) continues to face downward pressure as the Bank of Japan (BoJ) maintains a cautious stance towards further policy tightening. Additionally, reduced geopolitical tensions in the Middle East could dampen the appeal of the safe-haven JPY. Israel’s decision to withdraw additional troops from Southern Gaza, likely in response to mounting international pressure, has contributed to a relaxation of tensions.

Earlier on Monday, Bank of Japan (BoJ) Governor Kazuo Ueda made remarks expressing his aspiration to simplify and enhance the clarity of the central bank’s policy framework, provided economic conditions permitted. Governor Ueda made these comments while reflecting on his tenure since assuming the post approximately a year ago.