The USD/JPY cross climbed, up 0.01%, at 150.89. As an example, the average trade-weighted tariff rate on all US imports collectively just about quadrupled. It jumped up by roughly 5.5 to 6.0 pp. At the same time, the AUD/USD had the opportunity to keep its consolidative price action near the 0.6300 level. Market analysts were anticipating the US Personal Consumption Expenditures (PCE) Price Index to provide a solid increase to the AUD/USD currency pair. A confluence of economic causes presented significant headwinds and tailwinds for currency appreciation and depreciation.
With ongoing protections the new reality, rising trade tensions have quickly turned into a prominent headwind for the AUD/USD pair. Further weighing on the pair was a broader risk-off sentiment in the markets amid growing fears of economic slowdown. The recent upward movement of the US dollar also posed hurdles for the AUD/USD pair, creating a complex trading environment. Expectations for further stimulus measures from China supported more, providing a counter to these inflationary pressures.
Core inflation has emerged as a major area of interest for economists and central bankers. One of these responsibilities is controlling inflation in line with long-run targets, usually near 2 percent. Specifically, the rate of core inflation inverts shapes monetary policy by inducing rate increases at high levels of core inflation rates. The unexpectedly high Tokyo Consumer Price Index (CPI) figures undersidled this newly shifting dynamic. Leaving the door ajar for additional Bank of Japan (BoJ) rate hikes, which could serve to further assuage losses for the Japanese yen.
From a broader market perspective, declining inflation rates have historically been bullish for gold prices. As inflation releases its grip on the economy and slows, interest rates will decline with it, making gold a more favorable investment option. This negative correlation further highlights gold’s function as a hedge during times of rising inflationary pressures.