The Japanese yen fell against the Aussie yesterday following reports of lower than anticipated consumer spending data for July. The yen selloff was fueled by the Reserve Bank of Australia’s 50 bps rate hike, reflecting the fifth rate hike in as many policy meetings. Overall, the AUD/JPY pair rallied from a low of 95.48 to a high of 96.36 in the past 24 hours.
According to Japan’s Statistics Bureau, the country’s household spending grew by 3.40% y-o-y in July, following a 3.50% rise in the prior month, but missed the 4.20% increase anticipated by economists. The reported figure reflects the second consecutive month of increases. However, the yen’s fall to a two-year low has raised doubts about a rebound in consumption.
On a m-o-m basis, household spending fell by 1.40% in July, disappointing economists who were expecting only a marginal decline of 0.60%. The double-digit growth in leisure items paved the way for a rise in spending, compared with July 2021. Hotel expenses increased 55% on a y-o-y basis. Likewise, transport charges rose by 48%.
Economists have pointed out that the greatest risk faced by Japan’s consumers is increasing prices as the weak yen, which fell to a 24-year low of 140 last week, coupled with worldwide commodity inflation, has propelled the cost of imported goods and discouraged consumer spending.
The Ministry of Health, Labor, and Welfare has stated that average cash earnings (nominal wages) rose by 1.80% y-o-y in July, following a 2% increase in the prior month but a notch lower than the 1.90% growth anticipated by economists. The reported figure reflects the seventh successive month of increases.
Accommodations, eating, and drinking services posted a growth of 13%. Likewise, living-related and personal services and amusement services recorded an increase of 5.70%. Scientific research, professional, and technical services saw a rise of 5.40%. Manufacturing grew by 3.40%, while medical, healthcare, and welfare rose by 2.90%. On the contrary, wages fell by 1.50% in compound services. Education and learning support recorded a decrease of 0.80%. Mining and quarrying of stone and gravel posted a decline of 0.70%. Likewise, electricity, gas, heat supply, and water reported a drop of 0.70%.
According to the data published by the Australian Bureau of Statistics, the country’s current account surplus jumped to A$18.30 billion in the June 2022 quarter, from A$2.80 billion in the March 2022 quarter, but missed forecasts of A$22 billion. The reported figure reflects the 13th successive quarterly surplus. Notably, the surplus was led by goods and services exports, which increased by A$16.30 billion to A$43.10 billion, a new historical high.
Interestingly, higher price realization for commodities translated into a 4.60% increase in trade terms, with the corresponding index recording a new high of 130.70.
For the first time, annual exports of coal, coke, and briquettes surpassed A$100 billion in FY21–22.
The primary income deficit widened by A$709 million to A$23.95 billion in the June 2022 quarter. Also, the capital and financial accounts posted a deficit of A$18.90 billion in the June 2022 quarter, primarily led by a financial account deficit of A$18.70 billion.
The goods and services surplus was A$2.20 billion in 2Q22, compared with a deficit of A$2.87 billion in 1Q22. Goods exports surged 14.60% (or A$19.79 billion) to A$154.99 billion. Likewise, goods imports increased 2.90% (or A$3.012 billion) to A$106.42 billion.
Later in the day, the Reserve Bank of Australia announced a rate hike of 50 basis points. This pushes up the benchmark interest rate to 2.35%, the highest level since 2014.
The five consecutive hikes, including three consecutive 0.50% increases in benchmark interest rates, reflect the quickest rate hike cycle in 28 years.
However, the market expects further rate hikes to be of a lower magnitude (25 basis points or lower) even though the central bank has not announced any predetermined route for rate hikes. The 50 basis point rate hike and weak Japanese economic data are expected to keep the AUD/JPY pair bullish in the short term.
The historical price chart indicates that the AUD/JPY pair is rising after testing the support at 94.84. The next resistance is anticipated only in the vicinity of 100. Additionally, the currency pair is trading above its 50-day moving average while the stochastics indicator is in the bullish zone. Therefore, we anticipate the currency pair to remain in an uptrend in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
