AUD/JPY holds gains near 98.50 after the release of PMI data
- AUD/JPY rose as Australia Composite PMI revised upward to 50.2 in December, from the previous reading of 49.9.
- The Caixin China Services PMI increased to 52.2 in December 2024, up from the previous reading of 51.5.
- Japan’s composite and services PMIs for December were revised downward, bolstering a dovish stance on the BoJ policy outlook.
AUD/JPY continues to gain ground for the third consecutive day, trading around 98.50 during the European hours on Monday. This upside of the AUD/JPY cross is attributed to the improved Australian Dollar (AUD) following the release of the Judo Bank Australia Purchasing Managers' Index (PMI) and the Caixin Services PMI for China. Given their close trade relationship, fluctuations in China’s economy often have a notable impact on Australian markets.
The Judo Bank Australia Composite PMI for December 2024 was revised upward to 50.2 from an earlier reading of 49.9, signaling a third consecutive month of modest growth in private sector output. This growth was primarily driven by the services sector, while manufacturing output continued to contract. The Services PMI was also revised higher to 50.8 from 50.5 in November, representing the eleventh consecutive month of expansion in the services sector.
In China, the Caixin Services PMI increased to 52.2 in December 2024, up from 51.5 in November, surpassing market expectations of 51.7. This marks the fastest growth in the Chinese services sector since May, reflecting robust performance.
On Monday, Reuters reported that the Shanghai Stock Exchange has committed to deepen capital markets opening during a meeting with foreign institutions. China’s economy is underpinned by solid fundamentals and demonstrates resilience amid a complex global environment.
In Japan, composite and services PMIs for December were revised lower, reinforcing a dovish outlook on the Bank of Japan’s (BoJ) policy and exerting downward pressure on the Japanese Yen (JPY). The Jibun Bank Japan Services PMI was revised down to 50.9, falling short of the anticipated 51.4. Despite the downward revision, the reading improved from November’s 50.5, marking the second straight month of growth and the fastest pace since September.
Meanwhile, the Jibun Bank Japan Composite PMI rose to 50.5 in December from 50.1 in November, marking the second consecutive month of growth. While indicative of only marginal expansion, this was the strongest reading in three months. The increase was driven by modest growth in the services sector, alongside a softer contraction in manufacturing output.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.