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28 Apr 2025
AUD/JPY trades below 92.00, edges lower due to RBA rate cut expectations
- AUD/JPY depreciates as the AUD comes under pressure, driven by growing RBA’s rate cut expectations in May.
- The Australian Dollar may find support from signs of easing tensions between the US and China.
- The Japanese Yen weakens amid decreasing safe-haven demand due to improving global trade sentiment.
AUD/JPY pauses its three-day winning streak, trading near 91.80 during early European hours on Monday. The currency cross weakens as the Australian Dollar (AUD) comes under pressure, driven by growing expectations that the Reserve Bank of Australia (RBA) will cut interest rates by 25 basis points in May. Rising economic uncertainties and intensifying concerns over the global trade outlook are adding to the downward momentum.
On Thursday, Westpac forecasted that the RBA would lower rates by 25 basis points at its May 20 meeting. The RBA’s data-dependent policy approach has made it challenging to predict its decisions beyond the next meeting with confidence.
The AUD/JPY cross could strengthen as the Australian Dollar could find support from signs of easing tensions between the US and China, one of Australia's key trading partners. On Friday, China exempted certain US imports from its 125% tariffs, boosting hopes that the long-running trade war between the world’s two largest economies may be approaching a resolution.
However, this optimism was tempered when a Chinese embassy spokesperson told Reuters that "China and the US are not having any consultation or negotiation on tariffs," urging Washington to "stop creating confusion."
Meanwhile, the downside for the AUD/JPY cross may be limited as the Japanese Yen (JPY) softens amid improving global trade sentiment. Last week, Japanese Finance Minister Katsunobu Kato and US Treasury Secretary Scott Bessent met privately during the IMF and World Bank spring meetings in Washington. While Kato offered few details, he emphasized that Japan and the US would maintain close and constructive dialogue on exchange rates, suggesting currency issues may feature in broader trade discussions.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.