AUD/JPY regains just holding near 112.50 after the Reserve Bank of Australia (RBA) high its official cash rate to 4.35%. The pair trades around 112.65 in early European hours on Tuesday with the Australian Dollar gaining modest support from the rate decision. Traders now look ahead to Governor Michele Bullock press conference for further instruction.
As scheduled the RBA increased the rate by 25 basis points from 4.10% to 4.35% following its May policy meeting. The central bank also highlighted growing doubt around the domestic economy and inflation outlook.
Meanwhile the economic impact of the Iran war is expected to reduce growth forecasts. Projections suggest a 0.5% cut compared to earlier estimates with annual growth slowing to around 1.3% this year.
On the Japanese Yen side markets remain cautious amid alleged interventions by Japanese authorities. Finance Minister Satsuki Katayama stated that Japan is prepared to act against excessive currency movements.
Though there has been no official confirmation several signals suggest intervention may have taken place. Reports indicate that the Ministry of Finance and the Bank of Japan likely stepped in on Friday to support the yen. According to Commerz bank analyst Thu Lan Nguyen, the key concern now is how long the yen strength can be sustained.
