Yen rises, AUD, NZD steady ahead of policy decisions

February 17, 2025 (MLN): The yen rose on Monday in a boost from upbeat Japanese GDP data, while the Australian and New Zealand dollars held broadly steady ahead of policy decisions later in the week.

The dollar was on the back foot as traders assessed recent weaker-than-expected U.S. economic data which have reignited bets for more Federal Reserve rate cuts this year.

The yen last stood 0.5% higher at 151.5 per dollar, surging after data on Monday showed Japan's economy grew faster than expected in the fourth quarter on improved business spending and a surprise increase in consumption.

That cemented the case for more rate hikes from the Bank of Japan this year, according to Reuters.

Traders are now pricing in roughly another 37 basis points worth of rate hikes by December.

"The key takeaway for us is that the nominal household consumption grew significantly faster than real consumption", said Krishna Bhimavarapu, APAC economist at State Street Global Advisors.

"Their divergence remained wide, which may activate the BOJ's inflation-fighting mode," Krishna Bhimavarapu added.

"At the very least, this data removes the fears of stalling consumption, and is positive for the BOJ to deliver another hike, which could now come sooner rather than later."

In the broader market, the dollar was struggling to recoup its losses after a selloff on the back of Friday's weak U.S. retail sales data and as investors cheered the delay in the implementation of Donald Trump's reciprocal tariffs.

Geopolitics also remained in focus with reports that talks aimed at ending the Russian-Ukraine conflict will begin in Saudi Arabia this week, though the participants are not entirely clear.

That kept the euro supported, with the common currency inching closer to the $1.05 level and last at $1.0488, while sterling rose 0.03% to $1.2589.

The dollar index last stood at 106.74, after tumbling 1.2% last week, Reuters further added.

"The dollar weakness... was a function of both ongoing optimism that maybe tariffs are not going to be as disruptive as originally thought", said Rodrigo Catril, senior FX strategist at National Australia Bank.

"That, of course, remains to be seen. The Ukraine story is still bubbling in the background there," Rodrigo Catril added.

"And then the data, of course, playing to the idea that maybe the U.S. exceptionalism is running out of steam, so it's weighing on the U.S. dollar."

Down Under, the Australian dollar rose to a two-month high against a weaker dollar and last bought $0.6367, ahead of a rate decision from the Reserve Bank of Australia (RBA) on Tuesday.

The RBA is expected to deliver a quarter-point cut, marking its first reduction in over four years as it joins other major central banks in their easing cycles.

The kiwi similarly scaled a two-month top before paring some of its gains to last trade at $0.5736, ahead of the Reserve Bank of New Zealand's policy decision on Wednesday, where markets have priced in a 50-basis point reduction.

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