Tokyo, May 2 (BNA): The yen extended its sharp decline on Tuesday, hitting a 15-year low against the euro, as fallout from a steadily pessimistic Bank of Japan continued to rebound days after the decision.
Meanwhile, the Australian dollar jumped to a one-week high after the Reserve Bank of Australia surprised with a rate hike and signaled more tightening could be coming, Reuters reported.
The central bank raised the interest rate to 3.85% and said that “some additional tightening” may be required to ensure inflation returns to target in a reasonable time frame.
The Australian currency rose 1% to just below 67 US cents for the first time since April 25, after being mired near 66 cents for most of the past week.
“I think the RBA now thinks it needs to see a 4 in front of the cash rate before considering it might be done,” said Ray Attrell, head of forex strategy at National Australia Bank.
“Certainly the data flow since April has been on the strong side,” he added. “It is very likely that another one will come, although whether it will come is soon in June.”
The euro rose 0.24 percent to 151.31 yen, the highest level since September 2008.
The dollar rose 0.21% to 137.74 yen for the first time since March 8. A move above 137.90 would be this year’s high.
“The indication that the Bank of Japan will not change its negative interest rate policy anytime soon gives a green light to speculators to bring back carry trades into the yen,” said Naka Matsuzawa, chief Japan strategist at Nomura Securities.
Matsuzawa said the sale of First Republic’s assets to JPMorgan Chase & Co. gave investors more confidence about the outlook for the dollar.
“The odds of the Fed continuing the process of raising interest rates, rather than lowering them, are now a little higher.”
The single currency rose 0.1% against the dollar to $1.0985, but remained near the bottom of its range last week after overnight data showed US manufacturing retreated from a three-year low last month despite mounting inflationary pressures.
This keeps the Fed on track to raise interest rates by a quarter point on Wednesday.
Investors will focus on whether the US central bank is signaling that it expects to pause interest rate increases after May, or whether it maintains the possibility of another rate hike in June or later.
The main likely evidence of that will come on Friday, with the release of monthly employment data.
Meanwhile, the European Central Bank is widely expected to raise interest rates for the seventh consecutive meeting the following day, with a 50 basis point increase on the table.
This lifted the euro to its highest level in more than a year at $1.1096 last week.
By contrast, the Bank of Japan on Friday chose to leave its ultra-easy stimulus settings in place and embarked on a review of its monetary policy that could take a year and a half, suggesting no rush at all to policy normalization.
The decisions by the European Central Bank and the Federal Reserve, along with US jobs data, come when Japan observes the Golden Week holiday, which runs from Wednesday through the end of the weekend.
Rial