Key facts
- The yen firmed to 158.93 per U.S. dollar, but remained below its three-month high.
- Speculators slashed bearish bets on the yen by the most in over 12 years.
- The Reserve Bank of Australia is expected to keep its policy rate unchanged.
- The U.S. dollar was steady against most major currencies.
- Attention is also on upcoming U.S. consumer price index data.
The Japanese yen stabilized on Tuesday after a significant drop in the prior session, as the impact of a joint U.S.-Japan intervention to support the currency began to fade. The yen was trading at 158.93 per U.S. dollar, still some distance from the three-month high of 155.20 reached after the late July intervention.
Despite the intervention, which followed the yen hitting a 40-year low of 163.99 against the dollar, nearly half of those gains have been erased. Analysts suggest that speculators may rebuild short positions, anticipating further volatility. Trading volumes were thinner than usual due to a Japanese holiday.
Marc Chandler, chief market strategist at Bannockburn Capital Markets, noted that the market is testing the resolve of Japanese and U.S. officials. ING strategists warned of a potentially choppy path ahead, with a risk of the yen moving back towards 160.00 this month, even with potential Bank of Japan rate hikes and a Federal Reserve hold.
Traders are pricing in slightly over a 50% chance of a Bank of Japan rate hike, according to LSEG data. The BOJ's monetary policy path is also influenced by political pressure to support the bond market.
Investor attention is also directed towards the Reserve Bank of Australia's upcoming policy decision. The RBA is widely expected to maintain its current policy rate, with market participants focusing on comments from policymakers regarding inflation and the possibility of further rate increases. The Australian dollar stood at $0.7057.
Carol Kong, currency strategist at Commonwealth Bank of Australia, anticipates the RBA will emphasize that inflation remains elevated and that they are prepared to raise rates if necessary. She noted that ongoing Middle East conflict could contribute to consumer price increases, but softer inflation and a weak housing market provide the RBA room to assess the impact of previous tightening measures.
The U.S. dollar remained steady against most major currencies, influenced by oil prices hovering near one-week highs amid diminished hopes for a U.S.-Iran deal to resolve the Middle East conflict. The euro was at $1.1544 and sterling at $1.3509.
Upcoming U.S. economic data, including consumer price index figures on Wednesday, producer price data on Thursday, and retail sales on Friday, will be closely watched for insights into inflation trends and the broader economic path.