Japanese yen falls, negative data weigh on oil

The Aussie rises after RBA decision

By Nadia Elbilassy | @Nadia Elbilassy | 2 May 2023

Midday Market update
  • The RBA surprises markets with a 0.25% rate hike

  • The yen continues to decline after the Bank of Japan's decision

  • Oil prices drop for second day amid concerns over China's demand and rising interest rates

The Japanese yen falls against the US dollar

The Bank of Japan, led by new governor Kazuo Ueda, announced on Friday that it would maintain its current monetary policy and interest rates. The bank stated that it would closely monitor economic developments over the year.

As a result, the US dollar saw a significant increase against the yen, trading near the 137.38 levels for the third consecutive session.

The Bank of Japan justified its decision by noting that it was necessary to keep monetary policy unchanged to support the country's economic recovery and confirmed its ongoing purchase of government bonds on a large scale.

Oil demand prospects remain skewed

Oil prices decline for the second consecutive trading session, with WTI trading near $75 per barrel and Brent crude oil trading near $79 per barrel. The decline came after yesterday's sharp drop of more than 1%, which were attributed to renewed concerns about demand in China following disappointing data on the manufacturing sector, which showed an unexpected contraction.

This has led to concerns about the strength of the world's second-largest fuel-consuming economy, particularly after China's recovery in the first quarter of the year after ending its zero-COVID policies. Additionally, with central banks raising interest rates to curb high inflation, there are concerns that these actions will reduce economic activity and slow the demand for oil.

The RBA defies market expectations

The monetary policy committee at the RBA surprised markets by raising the main interest rate by a quarter of a percentage point to 3.85% in their fourth meeting this year, despite inflation rates slowing down.

The consumer price index on an annual basis last month was 6.8%, lower than the expected 7.2%, the lowest rate since June of last year. The Australian dollar pair experienced a significant increase against the US dollar, trading close to 0.67 levels. The RBA still believes it is far from reaching its targeted inflation levels