Japanese Yen and Australian Dollar News: Japan Data and China in Focus

Machinery Orders Spotlights Demand and the Japanese Yen

On Wednesday, October 16, economists expect machine orders to rise by 3.6% year-on-year in August, a sharp drop from the 8.7% increase in July. Order trends could influence USD/JPY movements.

Lower-than-expected orders could indicate a marked deterioration in demand, potentially impacting the Japanese economy. Weaker orders may affect the labor market, with manufacturing representing about 15% of Japan’s workforce.

A weaker labor market may slow wage growth, reduce consumer spending, and ease inflation. Any pullback in consumer spending would also impact the Japanese economy as it contributes over 50% to GDP. The Bank of Japan could delay a rate hike until Q1 2025, potentially driving the USD/JPY to 150.

Japanese Economic Indicators Crucial for the Bank of Japan

On October 10, Bank of Japan Deputy Governor Ryozo Himino emphasized the Bank’s rate decisions will hinge on incoming data. Weaker economic indicators, especially related to the labor market, inflation, and private consumption, could pressure the BoJ to hold off on any immediate rate hike.

Japanese Yen Daily Chart

Currently, the USD/JPY hovers near the 200-day EMA, with key resistance at 150.

Hawkish FOMC member commentary, downplaying Fed rate cuts in November and December, may drive US dollar demand and push the USD/JPY through 150.

Conversely, support for aggressive rate cuts to support the US labor market may drop the USD/JPY toward the 148.529 support level. The support level has bolstered buyer demand for the USD/JPY for seven consecutive sessions.

Aussie’s Westpac Leading Index and China in Focus

The Westpac Leading Index may impact the AUD/USD pair on Wednesday. Economists forecast the Index to increase by 0.2% in September after a 0.1% decline in August. Economists consider the Leading Index a barometer for the Aussie economy.

Better-than-expected numbers could reduce expectations of a Q4 2024 RBA rate cut, sending the AUD/USD toward $0.67500. Conversely, an unexpected fall may refuel bets on a Q4 rate cut, driving the AUD/USD toward $0.66500.

China’s policy maneuvers are also crucial. Economists expect the People’s Bank of China (PBoC) to maintain the 1-year Medium Term Lending Facility Rate (MLF) at 2.0% on Wednesday. After the recent wave of fiscal stimulus measures, additional measures to boost demand could benefit the Aussie economy, with its trade-to-GDP ratio above 50%.

Expert Views on the RBA Rate Path

AMP Head of Investment Strategy and Chief Economist Shane Oliver commented on the recent RBA Meeting Minutes, stating,

“RBA Minutes reiterated its cautious/hawkish stance: not enough had changed to change policy; it was not necessary for the cash rate to follow other central banks given higher inflation etc; financial stability concerns were not a constraint on policy; and it would be guided by data and risks.”

Risks may include Aussie household consumption and China’s economic effect on the Aussie economy.

Australian Dollar Daily Chart

The AUD/USD is trading around $0.67, well below the September 30 high of $0.69420. During the US session, Fed support for rate cuts in November and December could drive the AUD/USD toward $0.67500, a crucial resistance level in recent sessions. However, if Fed speakers call to delay rate cuts, the AUD/USD may fall toward $0.66500, a key support level from mid-September.