The U.S. dollar’s ascent has pushed the Japanese yen further into intervention territory, as the robust U.S. economy highlights the need for sustained higher interest rates.
Meanwhile, the Bank of Japan’s ultra-dovish stance struggles to defend its policy approach.
Australian, New Zealand dollar in free fall
The Australian dollar faced a sharp decline after unexpected drops in July employment figures, dragging down the New Zealand dollar as well.
Interest rate differentials between the U.S. and Japan have been placing pressure on the yen, even though the Federal Reserve is expected to maintain interest rates in September.
Resilient U.S. economic data bolster the view that interest rates will remain restrictive for an extended period.
This outlook poses challenges for the yen, which has faced difficulties due to growing interest rate gaps as the U.S. tightens its monetary policy while the Bank of Japan maintains low rates.
The recent rise of the dollar/yen pair increases the likelihood of Japanese authorities intervening in the FX market to support the yen.
The euro and sterling experienced slight declines, while the Australian and New Zealand dollars reached their lowest levels since November, driven by concerns over China’s weakening economic outlook.
The offshore yuan hit a fresh nine-month low, prompting speculation of potential fiscal stimulus measures by Chinese policymakers. The U.S. dollar index reached a two-month high amid these developments.