Anna 
The Japanese yen extended its decline against the dollar on Tuesday due to significant interest rate differentials, despite warnings from Japanese officials following suspected dollar-selling interventions last week.
The Australian dollar also retreated from a two-month peak against the U.S. dollar after the Reserve Bank of Australia refrained from signaling a more hawkish stance, contrary to market expectations.
Governor Michele Bullock, during a press conference after the central bank’s decision to maintain rates, expressed confidence that current monetary policy levels are appropriate to achieve the inflation target without necessitating further rate hikes.
The Australian dollar was down 0.51% at $0.6591, pulling back from Friday’s high of $0.6650.
James Kniveton, senior corporate FX dealer at Convera, remarked, “It was a case of ‘Buy the rumour and sell the fact,'” noting the market’s anticipation of a more hawkish stance from the RBA.
Meanwhile, the U.S. dollar strengthened by 0.39% to 154.50 yen, building on gains from Monday.
On Friday, the dollar had dropped to 151.86 yen, the lowest level since April 10, following disappointing U.S. jobs data and indications of potential Japanese intervention amounting to 9 trillion yen ($58.37 billion).
Japan’s finance ministry has refrained from confirming any dollar selling, but top currency diplomat Masato Kanda reiterated on Tuesday the government’s commitment to addressing disorderly yen movements.
Kanda also acknowledged that orderly market conditions would not necessitate intervention, which analysts interpreted as a signal of reduced intervention risks.
The carry trade remains attractive given the likelihood of a delayed Federal Reserve rate cut and the Bank of Japan’s cautious approach to tightening following its first rate hike since 2007 in March, leaving a substantial yield gap of 370 basis points between Japanese and U.S. long-term yields.
DBS analysts highlighted that despite recent gains, the yen remains the most undervalued currency in the G-10 grouping, contrasting with the dollar’s perceived overvaluation.
The U.S. dollar index, which measures the dollar against six major currencies including the yen, sterling, and euro, edged up by 0.11% to 105.27 after hitting 104.52 on Friday.
The euro slipped 0.1% to $1.0758, while sterling declined 0.14% to $1.2543.
