Australian Dollar Rebounds Despite RBA Rate Hike Uncertainty

The Australian Dollar (AUD) made a strong recovery against the Japanese Yen (JPY), nearly erasing earlier losses and stabilizing around 109.80 during Monday’s European trading session. This rebound came despite doubts about further interest rate hikes from the Reserve Bank of Australia (RBA), which has already raised rates four times this year. Analysts at Commerzbank argue that recent inflation data suggests the market’s expectation of 1.5 additional rate hikes may be excessive, given the ongoing softness in the housing market. They note that building permits fell 6.1% in August, and prices in major cities continue to decline, indicating that past rate increases are still impacting the economy.

Meanwhile, the Japanese Yen gained strength as Japan’s Prime Minister Sanae Takaichi pledged fiscal discipline, vowing to control annual debt issuance appropriately. This commitment boosted safe-haven demand for the Yen, even as the AUD recovered. Commerzbank emphasized that the RBA should adopt a wait-and-see approach, allowing time to assess the economic impact of previous rate adjustments before considering further hikes. The bank highlighted that interest rate changes take time to fully affect the economy, particularly in sectors like real estate, where the cumulative effects of tightening are still unfolding.