Australian Dollar slips against Japanese Yen due to increased risk aversion

The Australian Dollar (AUD) slipped against the Japanese Yen (JPY) on Thursday, trading around 110.70, as risk aversion increased due to escalating Middle East tensions. Iran and the United States (US) launched attacks on oil tankers, causing oil prices to rise and heightening inflationary pressures in Australia. This has led to speculation of a fourth Reserve Bank of Australia (RBA) interest rate hike this year, which could cap the AUD's decline.

RBA Assistant Governor Sarah Hunter indicated that the central bank may need to raise interest rates again if inflation remains persistent, suggesting another possible hike at the September meeting. Deutsche Bank noted that both Australia and Japan's long-end yields are nearing multi-year peaks due to re-pricing of the policy normalization path.

Bank of Japan board member Kazuyuki Masu's hawkish remarks emphasized the importance of ensuring inflation does not significantly exceed 2%. Higher interest rates generally strengthen a country's currency, but higher rates also push up the price of the US Dollar (USD), which affects Gold prices negatively. The Fed funds rate, set by the Federal Reserve, is closely monitored by market participants.

AUD/USD is projected to stay above 0.7200 during the Asian session, supported by hawkish Fed expectations and US-Iran tensions, but may face challenges from rising September Fed rate-hike expectations and US inflation data.