AUD/JPY remains above 111.50 as higher oil prices weigh on Japanese Yen

Finance

AUD/JPY remains above 111.50 as higher oil prices weigh on Japanese Yen

AUD/JPY extends its winning streak for the fourth successive session, trading around 111.70 during the European hours on Thursday. The currency cross gains as the Japanese Yen (JPY) weakens, with oil prices rebounding amid ongoing uncertainty surrounding the US-Iran ceasefire. It is worth noting that Japan remains highly sensitive to Middle East oil supply dynamics.

The JPY also faces pressure as markets increasingly expect fiscal policy to turn more expansionary if the Middle East situation becomes prolonged, according to Sho Suzuki, market analyst at Matsui Securities.

Bank of Japan (BoJ) Governor Kazuo Ueda stated that short- and medium-term interest rates remain clearly negative, with accommodative financial conditions supporting a moderate rise in capital expenditure, Reuters reported.

However, the upside in the AUD/JPY cross may be capped as the Australian Dollar (AUD) struggles amid fading US-Iran ceasefire optimism, with reports indicating the 10-point framework still lacks full commitment from both sides, leaving the agreement fragile and incomplete.

The Middle East conflict, now in its second month, has pushed energy prices higher and heightened inflation risks, reinforcing expectations that global central banks may maintain tighter policy for longer.

The Reserve Bank of Australia (RBA) has already lifted rates by 50 basis points to 4.10% in response to persistently elevated inflation. Markets are now pricing in another rate hike in May, with rates projected to reach 4.61% by the end of the year.