On Tuesday, the Japanese yen extended its decline against the US dollar, influenced by substantial interest rate differentials, despite renewed warnings from Japanese authorities following suspected dollar-selling interventions last week.
Meanwhile, the Australian dollar retraced from nearly a two-month peak against its US counterpart subsequent to the Reserve Bank of Australia’s (RBA) decision to maintain rates at their current level, as widely anticipated. The RBA refrained from signaling any significant hawkishness in its policy statement, leading to a 0.36% decline in the Aussie to $0.6601, after reaching $0.6650 on Friday, a level not seen since March 8.
James Kniveton, senior corporate FX dealer at Convera, remarked, “It was a bit of ‘Buy the rumor and sell the fact,'” suggesting that markets were anticipating a more hawkish stance from the RBA, but the statement turned out to be relatively neutral.
Investor focus is now on Governor Michele Bullock’s press conference scheduled for 0530 GMT.
The US dollar strengthened by 0.44% against the yen to 154.5635, building on Monday’s 0.58% gain. On Friday, it had plummeted to 151.86 yen, the lowest level since April 10, in response to softer-than-expected US jobs data and Bank of Japan indications hinting at possible intervention, estimated at around 9 trillion yen ($58.37 billion).
While Japan’s finance ministry has not confirmed its involvement in the dollar-selling, top currency diplomat Masato Kanda reiterated on Tuesday the government’s commitment to addressing disorderly movements in the yen. However, he also acknowledged that orderly market conditions would obviate the need for intervention, implying reduced intervention risks.
The allure of the carry trade persists, as expectations of a Federal Reserve rate cut remain distant, and the cautious stance of the BOJ on tightening monetary policy post its March rate hike leaves a substantial gap of 370 basis points between Japanese and US long-term yields.
Despite a rebound last week, DBS analysts consider the yen as the most undervalued currency among the G-10, while the dollar is deemed “highly overvalued.” In a client note, they expressed anticipation for Japan to continue countering excessive yen weakness.
The US dollar index, gauging the currency against six major peers, including the yen, sterling, and euro, edged up by 0.04% to 105.19, after touching 104.52 on Friday.
The euro held steady at $1.07655, while sterling dipped by 0.07% to $1.2552.
(Note: $1=154.2000 yen)