(Bloomberg) -- Australia’s dollar is at risk of extending its slide against the yen based on the outcome of two crucial events next week: local inflation data and a Bank of Japan meeting.
The Aussie may fall back to as low as 100 yen if inflation is soft and the BOJ decides to raise interest rates, according to Westpac Banking Corp. The yen is undervalued given Japanese policymakers are moving toward hiking rates while many of their peers are looking to cut them, Corpay Solutions says.
“Aussie-yen in the 100-to-102 zone as soon as next week — after second-quarter CPI and the BOJ — is a very achievable target,” said Richard Franulovich, head of foreign-exchange strategy at Westpac in Sydney.
The Aussie traded at 102.89 yen early Wednesday, having fallen almost 6% versus Japan’s currency since climbing to a more-than three-decade high of 109.37 on July 11. The retreat has come as commodity prices have declined and the prospect of a Donald Trump victory in November’s presidential election pointed to worsening US-China relations.
‘Downside Potential’
Australian inflation accelerated for a third month in May to 4%, a government report showed last month, though that’s still down from as high as 8.4% in December 2022. There isn’t yet an economist survey result for the June and key quarterly data, which will be released July 31.
On the same day, the BOJ will publish its policy statement, with markets pricing in a roughly 40% probability of a rate hike. About 30% of Bank of Japan watchers surveyed by Bloomberg expect a hike on July 31 while more than 90% see the risk of such a move.
“There’s more downside potential in AUD/JPY,” Peter Dragicevich, an Asia Pacific currency strategist at Corpay in Sydney, wrote in a research note. “Even after its partial reversal, we feel AUD/JPY is still looking stretched compared to long-run relative interest-rate expectations.”
©2024 Bloomberg L.P.
