Japanese Yen and Australian Dollar News: Consumer Confidence and Aussie Inflation

Will Japan’s Consumer Confidence Drive USD/JPY Shift?

On Wednesday, October 30, Japan’s consumer confidence numbers will likely impact USD/JPY price trends. Economists expect the Consumer Confidence Index to increase from 36.9 in September to 37.0 in October.

An uptick in consumer confidence could signal stronger household spending, fueling demand-driven inflation. Rising inflation may raise expectations of a Q4 2024 Bank of Japan rate hike, potentially pulling the USD/JPY below 152.5.

Conversely, an unexpected fall in consumer confidence may dampen consumer spending and inflationary pressures. Softer inflation and falling bets on a Q4 2024 BoJ rate hike could drive the USD/JPY toward 155.

The latest Reuters poll revealed a divided outlook, with 25 of 49 economists expecting the BoJ to maintain its 0.25% interest rate through Q4 2024. The divided sentiment highlighted the uncertainty surrounding the BoJ’s rate path and a likely increased sensitivity to upcoming economic data.

The General Election Fallout and Upcoming BoJ Interest Rate Decision

While the economic data may influence the BoJ’s inflation outlook, Sunday’s general election result will likely remain a key consideration. The Liberal Democratic Party (LDP)-Komeito coalition secured 218 seats, 18 short of the 233 needed for a majority. The shortfall means the LDP must negotiate with lesser parties to form a majority, which may require concessions.

Before becoming Prime Minister, Shigeru Ishiba endorsed the BoJ’s stance on monetary policy normalization. However, Prime Minister Ishiba may need to pivot, with many parties favoring loose monetary policy to address living cost issues

On Thursday, October 31, the BoJ could tone down plans for further rate hikes because of political uncertainty, which may affect demand for the Japanese Yen.

Japanese Yen Daily Chart

In the upcoming US session, US GDP and ADP employment change figures will influence US dollar demand. Economists expect the US economy to expand by 3.0% in Q3 2024. Additionally, economists predict the ADP will report a 115k increase in employment in October, down from 143k in September.

Better-than-expected numbers could reduce bets on a December Fed rate cut, driving the USD/JPY above 154, a key resistance level this week. On the other hand, rising expectations of a December Fed rate cut may drag the pair below 152.5.

Beyond the economic calendar, the US Presidential Election polls could further influence the USD/JPY pair. Rising support for Donald Trump may boost US dollar demand.

Aussie Inflation and RBA Spotlight

Turning to the Aussie economic calendar, crucial inflation figures will influence the AUD/USD pair. Economists forecast the annual inflation to drop from 3.8% in Q2 to 2.9% in Q3. Significantly, economists expect the more influential Monthly CPI Indicator to fall from 2.7% in August to 2.3% in September, nearing the lower band of the RBA’s 2-3% inflation target.

Softer-than-expected inflation could boost investor bets on a November RBA rate cut. Speculation about a November rate cut may pull the AUD/USD below a crucial support level at $0.65500.

While softer inflation could pressure the RBA to cut rates, forward guidance will be crucial. In September, RBA Governor Michele Bullock stated that while headline inflation could come within the target range, it may not reflect underlying inflation trends. Insights into underlying inflation will likely dictate the RBA rate path, with tight labor market conditions another consideration.

Expert Views on the RBA Rate Path

AMP Head of Investment Strategy and Chief Economist Shane Oliver recently gave his insights into RBA monetary policy, stating,

“Falling job vacancies & hiring plans evident in our Jobs Leading Indicator continues to point to slower jobs grth ahead. But for now the RBA will regard the jobs mkt as still tight, which on its own reduces the possibility of a rate cut by yr end. Our base case is Feb for first cut.”

Australian Dollar Daily Chart

In Wednesday’s US session, Q3 GDP and ADP labor market data could fuel AUD/USD volatility. Better-than-expected US data may drag the AUD/USD toward $0.65 if Aussie inflation is softer than forecast. Conversely, weaker ADP and GDP numbers could raise bets on a December Fed rate cut, potentially pushing the AUD/USD toward $0.66.

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