Rba Minutes And Inflation Outlook
The Reserve Bank of Australia’s March meeting minutes said further policy tightening would likely be needed, though members differed on timing. They noted oil near $100 per barrel could lift June-quarter CPI to around 5%, and most were concerned inflation expectations could become unanchored without prompt action. The Japanese Yen found support from repeated public warnings from Tokyo and rising expectations of possible intervention. Currency official Atsushi Mimura said on Monday the government would act decisively if needed, echoing earlier comments from Finance Minister Satsuki Katayama. Tokyo CPI rose 1.4% year on year in March, down from a revised 1.5% in February, while core CPI rose 1.7% from 1.8% and below the 1.8% forecast. Both readings stayed under the Bank of Japan’s 2% target. We are seeing the AUD/JPY cross hold near 109.70, but the dynamics have changed significantly from what we observed around this time in 2025. Last year, we saw a mixed Chinese manufacturing report cause worry, but today China’s latest Caixin Manufacturing PMI for March 2026 came in at a strong 51.1, its fifth consecutive month of expansion. This suggests the Australian dollar’s main trading partner is on a much firmer footing than previously thought.Shifting Central Bank Divergence
Last March, in 2025, we recall the Reserve Bank of Australia was discussing the need for further rate hikes to combat inflation which was threatening to reach 5%. Now, with Australia’s quarterly inflation having eased to 3.8% by the end of 2025 and the RBA holding its cash rate steady at 4.35% for several months, the urgency for tightening has faded. This removes a key pillar of support for the Aussie dollar that was present a year ago. The situation in Japan has reversed dramatically from what we saw in 2025. Back then, Tokyo’s CPI was running at a mere 1.4%, well below target, but now the latest figures show it is running at 2.6%, firmly above the Bank of Japan’s goal. This sustained inflation prompted the BoJ to finally end its negative interest rate policy earlier this month, a major policy shift that provides fundamental support for the yen. The verbal warnings about intervention from Japanese officials we heard throughout 2025 are now backed by actual monetary policy action. The interest rate difference that made borrowing yen to buy Aussie dollars so attractive is beginning to shrink. This shift suggests that the long-held upward momentum in AUD/JPY may be exhausted. For derivatives traders, this signals a potential increase in volatility as the market reprices the new central bank realities. Given the RBA is on hold and the BoJ has just begun a potential tightening cycle, purchasing AUD/JPY put options could be a prudent strategy to guard against a downward correction. We should also watch for opportunities in selling call spreads to capitalize on the limited upside potential we now see for the pair. Create your live VT Markets account and start trading now.
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