(Bloomberg) — The Australian dollar is poised to climb back toward a 35-year high against the yen as the impact of Tokyo’s currency intervention fades and the Reserve Bank of Australia’s hawkish stance bolsters the exchange rate, according to strategists.
The currency pair is already recovering after dropping more than 4% toward the 109 level following Japanese currency intervention. It closed around 111.52 last week.
Expectations of a further recovery underscore views that interventions by Japanese authorities will offer only temporary relief for the yen against currencies backed by higher interest rates. With the next RBA policy decision on the horizon, analysts are increasingly betting that rate differentials will overshadow Tokyo’s market smoothing efforts.
“Much of the shift on the yen leg is done,” said Mahjabeen Zaman, head of FX research at ANZ Group Holdings Ltd. in Sydney, adding that further Japanese intervention is unlikely given clear signaling from the US on potential coordinated action.
On the Australian side, Zaman expects the RBA to remain hawkish amid geopolitical and energy price uncertainties. “The positive terms-of-trade support for the Aussie will keep it resilient on the crosses,” she said.
That shift in sentiment is already showing up in derivatives markets. The premium to hedge against a drop in Aussie-yen over the next month declined rapidly last week, signaling that traders are abandoning bearish bets.
AT Global Markets Australia expects Aussie-yen to return toward its late-July levels, provided there’s no fresh intervention from Japanese or US authorities to support the yen over the short-to-medium term. Chief Market Analyst Nick Twidale said that improving geopolitical sentiment could further strengthen the Aussie.
“The initial target will be 113.38, the July 29 low, with stronger resistance up near the annual high at 114.80,” Twidale said, pointing to rate spreads as a key driver behind the currency pair’s prior rally toward 115.
Traders are now turning their attention to the RBA’s monetary policy decision on Aug. 11. The central bank is widely expected to keep interest rates on hold, though swap markets are still pricing in roughly a 50% probability of another quarter-point hike by year-end.
That stance is backed by RBA Governor Michele Bullock’s comments late last month, when she affirmed that policymakers won’t hesitate to deliver additional rate hikes if needed.
Not everyone is convinced the central bank’s stance can sustain a prolonged rally.
Commonwealth Bank of Australia FX strategist Samara Hammoud cautions that Aussie-yen has limited room to run once the recent dip unwinds, forecasting the cross to slide toward 108 by the end of this quarter. Hammoud expects the RBA to hold rates steady for the remainder of the year before initiating rate cuts, while the Aussie faces additional headwinds from broader US dollar strength.
Yet, some other analysts maintain that the broader macroeconomic backdrop favors the Aussie.
“The RBA will likely remain hawkish next week and this, along with the gradually fading effects of FX intervention to support the yen, should be positive for Aussie-yen,” said David Forrester, senior FX strategist at Crédit Agricole.
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