Japanese Yen and Australian Dollar News: US Election Outcomes and the RBA

Bank of Japan Monetary Policy Outlook

The US Presidential Election and Japan’s political deadlock are set to collide—what does this mean for the volatile USD/JPY pair?

Tuesday, November 5, may prove choppy for the USD/JPY pair. Japan’s post-general election political impasse may take a back seat as markets focus on the US Presidential Election.

The October 27 general election left the ruling Liberal Democratic Party (LDP) – Komeito coalition short of the required 233 seats for a majority. Notably, LDP President and Japan’s Prime Minister Shigeru Ishiba has yet to resign despite the election shock.

Media reports indicate that Prime Minister Ishiba intends to retain his position. However, securing a majority government is essential for the stability of the Japanese Yen. A continued political stalemate could dampen Japanese Yen demand. The Bank of Japan may reconsider its monetary policy goals until the situation stabilizes.

Bank of Japan’s Views of the Political Deadlock

Following the general election result, Bank of Japan Governor Kazuo Ueda discussed the possible influence on BoJ monetary policy, stating,

“Recent political developments alone won’t directly affect our price forecasts. But if there are big changes in policy, we will revise our forecasts as needed taking into account the impact of such moves.”

Japan’s political uncertainty has failed to sink the Japanese Yen as the Bank of Japan left the door open to further rate hikes. There is also a more significant election across the Pacific, which may have far more significant implications for the geopolitical landscape. Uncertainty about the US election has driven demand for the Yen.

Japanese Yen Daily Chart

Turning to the US session, ISM Services PMI data will draw interest. An unexpected rise in the PMI and upward trends in employment and prices may reduce expectations of a December Fed rate cut. A more hawkish Fed rate path may push the USD/JPY towards 154.

Conversely, an unexpected drop toward 50 may signal a negative shift in the US economy, supporting a more dovish Fed rate path. Rising bets on a December Fed rate cut could drag the USD/JPY toward 150.

While investors should consider the numbers, USD/JPY pair trends will likely hinge on the US Presidential Election. The USD/JPY will react to US election results throughout Tuesday as the latest polls signal an uncertain outcome.

RBA Interest Rate and Press Conference in Focus

As the focus shifts from Japan to Australia, the RBA’s interest rate decision could impact the AUD/USD pair. Economists expect the RBA to maintain the cash rate at 4.35%, placing greater emphasis on the Rate Statement and press conference.

Recent Aussie inflation figures have raised investor expectations for a December RBA rate cut. The annual inflation rate dropped from 3.8% in Q2 2024 to 2.8% in Q3 2024.  Inflation fell within the RBA’s 2-3% target range. However, underlying inflation remains an RBA bugbear at 3.5%, despite falling from 4.0% in Q2 2024.

RBA Governor Michele Bullock’s view on the inflation outlook could be crucial. Dismissing the headline figures could sink bets on a December RBA rate cut, potentially driving the AUD/USD pair toward $0.66500. Conversely, support for a December rate cut on projections of softer Q4 inflation trends could drag the AUD/USD pair below $0.65.

Expert Views on Aussie Inflation and the RBA Rate Path

AMP Head of Investment Strategy and Chief Economist Shane Oliver recently supported a December RBA rate cut if the Monthly CPI Indicator continued to decline in October. In September, the Monthly CPI Indicator fell from 2.7% in August to 2.1%, nearing the RBA’s lower target range.

Australian Dollar Daily Chart

Turning to Tuesday’s US session, service sector PMI data will impact AUD/USD trends. A better-than-expected ISM Services PMI may boost US dollar demand, potentially dragging the AUD/USD toward $0.65. Conversely, weak PMI numbers may fuel speculation about November and December Fed rate cuts, driving the AUD/USD toward $0.66500.

Beyond the numbers, the US presidential election results could significantly impact the AUD/USD pair. Signals for a Trump win could boost demand for the US dollar, potentially sending the AUD/USD below $0.65 on expectations of tariffs impacting global trade.

Traders should stay alert. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Keep ahead of the market with our expert insights.