The AUD/JPY currency pair is experiencing a bullish trend, with the Australian Dollar (AUD) strengthening against the Japanese Yen (JPY). This is primarily due to the interest rate differential between the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ), with the RBA holding the Official Cash Rate (OCR) steady at 4.35% and the BoJ maintaining its negative interest rates. However, the potential for Japanese authorities to intervene could cap the upside for the cross.
The RBA's decision to hold the OCR steady at 4.35% after three consecutive 25 basis points (bps) hikes earlier this year has been influenced by rising oil and fuel prices, which could cement a fourth interest rate rise this year if US President Donald Trump’s conflict with Iran is not resolved. This has led traders to raise their bets on an RBA rate hike, with nearly a 23% odds of a hike in August and more than a 50% chance by December.
The AUD/JPY pair is currently trading around 113.85, with a bullish near-term bias as it remains above the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day middle band. The price is advancing toward the Bollinger upper band, while the Relative Strength Index (14) around 60 suggests firm but not overstretched upside momentum.
On the topside, immediate resistance aligns with the Bollinger Bands’ upper band at 114.10, with the next hurdle at the May 13 high of 114.74 and the 115.00 psychological level. On the downside, initial support is seen at the July 20 low of 113.10, with the next contention level at the 100-day SMA at 112.75 and the Bollinger middle band at 112.55.
The AUD's strength is influenced by several factors, including the level of interest rates set by the RBA, the price of Iron Ore, the health of the Chinese economy, and the Trade Balance. The RBA's interest rates, which are relatively high compared to other major central banks, support the AUD. The Chinese economy's health is also crucial, as it is Australia's largest trading partner, and positive surprises in Chinese growth data often have a direct impact on the Australian Dollar.
Iron Ore, Australia's largest export, is a significant driver of the AUD. Higher Iron Ore prices tend to result in a positive Trade Balance for Australia, which strengthens the AUD. The Trade Balance, which is the difference between exports and imports, is another factor that can influence the value of the Australian Dollar. A positive net Trade Balance strengthens the AUD, while a negative balance has the opposite effect.
In conclusion, the AUD/JPY pair is experiencing a bullish trend, influenced by the interest rate differential between the RBA and BoJ, rising oil and fuel prices, and the potential for Japanese authorities to intervene. The AUD's strength is also influenced by the level of interest rates, the price of Iron Ore, the health of the Chinese economy, and the Trade Balance. These factors collectively contribute to the AUD's performance in the currency markets.
