The Australian dollar faced renewed selling pressure on Tuesday following the release of *dovish RBA minutes, a **wider-than-expected current account deficit, and *muted retail sales growth for January. At the same time, the Japanese yen strengthened as safe-haven demand surged, adding further weight to AUD/JPY and influencing broader forex sentiment.
Key Developments Impacting the Australian Dollar
1. RBA Minutes Signal Dovish Stance
The Reserve Bank of Australia (RBA) minutes from its latest meeting indicated policymakers remain cautious about premature rate cuts but acknowledged rising economic headwinds.
- The board noted that *inflation is easing, but *weak consumer spending and subdued business investment pose risks to growth.
- Members discussed the potential need for lower rates in late 2025 if economic conditions deteriorate.
- The Australian dollar (AUD/USD) fell to a fresh multi-week low as traders interpreted the minutes as a signal for possible easing later this year.
2. Current Account Deficit Surges
Australia’s Q4 current account deficit widened to A$12.5 billion, surpassing forecasts and reinforcing concerns over external vulnerabilities.
- A higher trade deficit due to weaker commodity exports contributed to the shortfall.
- Rising import costs and a slowdown in demand from key trading partners, including China, added pressure.
- The larger-than-expected deficit weighed on the Australian dollar, highlighting the challenges facing the economy.
3. Retail Sales Show Modest Growth
Retail sales for January posted only a slight gain, driven mainly by food-related spending rather than broader consumer demand.
- January retail sales rose 0.2% month-on-month, indicating weak household spending.
- Discretionary spending remained under pressure, reflecting higher borrowing costs and weaker wage growth.
- The report further reinforced expectations that the RBA may turn dovish sooner than previously anticipated.
Japanese Yen Strengthens Amid Safe-Haven Demand
1. Yen Gains as Market Volatility Rises
The Japanese yen found renewed strength, benefitting from risk-off sentiment and a retreat in global equities.
- USD/JPY resumed its decline after a recent bounce, falling towards key support levels amid a shift toward safer assets.
- Geopolitical concerns and economic uncertainty contributed to rising demand for the yen, particularly against higher-yielding currencies like the Australian and New Zealand dollars.
- The strengthening yen also coincided with *Japanese economic data exceeding forecasts, further supporting the case for *potential policy tightening by the Bank of Japan (BOJ).
2. BOJ Policy Expectations and Yen Momentum
With BOJ policymakers debating the need for future rate hikes, market participants are closely monitoring the central bank’s stance on inflation and wage growth.
- The yen’s safe-haven appeal remains strong, particularly in an environment where central banks globally are reconsidering their policy trajectories.
- USD/JPY is testing critical support levels, with a break below 149.50 potentially signaling further downside pressure.
Market Outlook: What’s Next for AUD and JPY?
- Australian Dollar:
- Downside risks remain as economic data disappoints and the RBA leans dovish.
- Further weakness could be expected if upcoming employment data and GDP figures fail to meet expectations.
- Japanese Yen:
- The yen remains well-positioned as long as risk aversion persists.
- Any hawkish shift from the BOJ could accelerate further gains, pushing USD/JPY lower.
Traders will be watching *Australian GDP data, upcoming **BOJ policy discussions, and broader global risk trends to gauge *the next major move in forex markets.
