Japanese Yen and Australian Dollar News: BoJ Rate Hike Bets; RBA Rate Decision

Machine Tool Orders: Will Demand Boost BoJ Rate Hike Prospects?

Japan’s machine tool orders will influence the USD/JPY pair later this morning. Economists expect machine tool orders to increase by 3.2% year-on-year in November, down from 9.3% in October.

A sharper-than-expected slowdown in demand for machine tools would reflect trends highlighted in November’s Jibun Bank Manufacturing PMI survey. Japan’s manufacturing sector saw conditions deteriorate for a fifth consecutive month in November. Manufacturers also cut staffing levels for the first time since Q1 2024.

Weakening manufacturing conditions could spill over to the services sector, posing broader risks to Japan’s economy. A broader private sector downturn could temper bets on multiple Bank of Japan rate hikes, dampening Japanese Yen demand.

Weaker private sector activity could strain the labor market, slowing wage growth and consumer spending. A pullback in consumer spending may soften inflationary pressures, potentially leaving the BoJ in a policy-holding pattern.

However, better-than-expected orders may boost bets on a BoJ rate hike and Yen demand.

Japan GDP Data and Shifting Policy Sentiments

The USD/JPY may be more sensitive following Monday’s revised Q3 GDP numbers. Japan’s economy grew by 0.3% quarter-on-quarter in Q3 2024, slowing from 0.5% in Q2 2024.

A series of weaker economic indicators could give the BoJ doves greater authority in next week’s policy meeting.

BoJ Governor Emphasizes Data Dependence

Bank of Japan Governor Kazuo Ueda recently hinted at the potential for a rate hike, saying the economy aligned with the Bank’s projections. The BoJ Governor previously stated the economy must progress in line with the Bank’s projections to enable the Bank to raise interest rates.

However, slower growth in Q3 and weaker machine tool orders could challenge this outlook. The potential effects of Trump’s tariffs on global trade will also warrant the BoJ’s consideration. A global trade war may impact demand for Japanese goods, the economy, and the prospects of monetary policy normalization, projected at 1%.

Japanese Yen Daily Chart

Turning to Tuesday’s US session, finalized unit labor cost and nonfarm productivity figures could influence USD/JPY trends. Higher labor costs, an inflation indicator, could decrease expectations of successive Fed rate cuts.

Conversely, softer labor costs may bolster bets on a dovish Fed, narrowing the interest rate differential between the US and Japan.

A more hawkish Fed rate path may drive the USD/JPY pair toward 156.884. Conversely, multiple Fed rate cut bets could drag the pair below the 149.358 support level, potentially targeting the 147.5 mark.

AUD/USD and the RBA Interest Rate Decision: Will Governor Bullock Signal a Rate Cut?

Shifting the focus to another key currency pair, AUD/USD also faces pivotal economic events. The highly anticipated RBA interest rate decision and press conference will be the focal points.

Economists expect the RBA to keep the cash rate at 4.35%. Barring an unexpected RBA rate cut, Governor Michele Bullock’s comments could steer the AUD/USD pair.

In November, RBA Governor Michele Bullock shared the Bank’s inflation forecasts. The RBA projected underlying inflation will be back at the top of the target range (2-3%) by the end of 2025 and to the mid-point of the band by the end of 2026.

However, Governor Bullock noted that underlying inflation remains too high and requires restrictive monetary policy until more progress has been made. Because of elevated underlying inflation, the RBA did not rule anything in or out.

Shifts in the Governor’s inflation expectations, services inflation, and labor market trends will be crucial for a potential jump in bets on a Q1 2025 rate cut.

A hawkish RBA stance could lift the AUD/USD toward $0.65. However, increased expectations for a rate cut may push the pair toward the $0.63623 support level.

Meanwhile, trade data from China, and stimulus-related updates from Beijing also require consideration. Stimulus measures targeting domestic consumption and China’s real estate market will Aussie dollar demand. China is Australia’s largest export market, accounting for one-third of Aussie exports.

Explore detailed AUD/USD trends and trade data insights by clicking here.

Australian Dollar Daily Chart

In the US session, quarterly productivity and unit costs may signal potential shifts in the interest rate differential between the US and Australia. Higher-than-expected unit labor costs may lower bets on multiple Fed rate cuts, leaving the rate differential in the US dollar’s favor.

A more hawkish Fed rate path could push the AUD/USD pair through the $0.63623 support level. Conversely, rising bets on multiple Fed rate cuts could drive the pair through the upper trend line, potentially targeting the crucial $0.65 mark.

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