AUD/JPY: Aussie Rises as RBA Minutes Scale Down Rate Cut Expectations

The Australian dollar is deemed to sustain its gains opposite the Japanese yen today after the Reserve Bank of Australia said it saw signs that low interest rates are starting to stimulate the economy, managing to scale down expectations of further rate cuts in the months ahead. Meanwhile, a bleak trade report from Japan is foreseen to weigh o the Yen today.

Minutes of the RBA’s February 5 meeting published yesterday indicated that members are positive about the economy, seemingly suggesting that they are in no rush to cut the cash rate again. The minutes indicate that the RBA is waiting to see how the last series of interest rate cuts in October and December will flow through the economy before deciding if further cuts are needed. “Interest rate sensitive parts of the economy had shown some signs of responding to these lower interest rates,” the RBA noted. The RBA kept borrowing costs at 3 percent during the meeting as it saw signs of improvement in the global economy. The RBA said the economy of China, the nation’s largest trading partner, has stabilized, underpinned by public spending and stimulatory financial policies. It also noted that the international outlook has improved as the US managed to avert the fiscal cliff. With analysts saying that the tone of the minutes suggests that the hurdle to cut further is relatively high, the Aussie is apt to strengthen today.

Meanwhile, Japan’s trade deficit expanded to a record in January as energy imports rose more than expected, highlighting one of the risks of seeking to revive the economy by pursuing policies that could weaken the currency. The trade gap reached a record 1.6 Trillion Yen, larger than the median forecast for a 1.38 Trillion Yen, as a 6.4 percent rise in exports was offset by a 7.3 percent jump in imports. Since November, the Yen has tumbled 16 percent against the US dollar, making exports more competitive but increasing the cost of imports. On such dose of bleak economic update from Japan, the Yen is believed to dip, warranting a long position for the AUD/JPY trades today.

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