AUDJPY Pulls Back on Jobs Data, RBA Hike Bets Ease

Key Moments

RBA Expectations Shift After Labor Market Surprise

The AUD/JPY cross is softer in early European trading on Friday, changing hands near 113.50 and extending its move into negative territory. The Australian Dollar is losing ground against the Japanese Yen as traders reduce expectations for further interest rate tightening by the Reserve Bank of Australia after weaker labor market figures.

Data from the Australian Bureau of Statistics on Thursday showed the Unemployment Rate climbing to 4.5% in April from 4.3% in March, marking the highest reading in about four and a half years. This development is seen as giving the RBA additional justification to refrain from a fourth rate hike at its June policy meeting, creating a headwind for the Aussie.

According to financial market pricing cited by Westpac, the implied probability of a rate increase at the upcoming RBA meeting has dropped to 3%, compared with 13% before the employment report was released.

Japanese Inflation Softens, Limiting Yen Strength

On the Japanese side, recent inflation data are exerting downward pressure on the Yen and partially offsetting AUD weakness. Figures from the Japan Statistics Bureau on Friday showed that the National Consumer Price Index rose by 1.4% year-on-year in April, slightly below the 1.5% pace recorded in March.

Japan’s core CPI also increased by 1.4% year-on-year in April, which represented the slowest annual rate in four years. The softer inflation backdrop could reduce support for the JPY, providing some underlying tailwind for the AUD/JPY cross.

Technical Landscape: Uptrend Intact Above 100-Day SMA

From a technical standpoint, AUD/JPY continues to trade comfortably above the 100-day Simple Moving Average at 110.70 on the daily chart, preserving a broadly constructive bias despite the recent pullback from highs. Price action is hovering just below the 20-day SMA at the center of the Bollinger Bands, pointing to a moderation in upside momentum rather than a full reversal, while the 14-day Relative Strength Index near 51 indicates neutral to slightly positive momentum and does not signal overbought conditions.

On the upside, the first resistance level is aligned with the Bollinger Bands’ middle line around 113.65. A sustained break above this area would expose the May 14 peak at 114.66, followed by the upper Bollinger band near 114.83 as the next barrier.

On the downside, initial support is seen at the lower Bollinger band around 112.50, ahead of the April 13 low at 111.66. The 100-day SMA in the 110.70 zone is viewed as critical trend support, where buyers would likely attempt to protect the prevailing upward structure if the pair experiences deeper pullbacks.

Australian Dollar: Key Macro Drivers

One of the primary influences on the Australian Dollar (AUD) is the interest rate level set by the Reserve Bank of Australia. As a resource-rich economy, Australia is also significantly affected by the price of its major export, Iron Ore. Other important factors include the strength of the Chinese economy, Australian inflation, domestic growth dynamics, and the Trade Balance. Broader market sentiment – whether investors are embracing risk (risk-on) or seeking safety (risk-off) – also plays a meaningful role, with risk-on conditions typically supportive for the AUD.

Role of RBA Policy in AUD Valuation

The Reserve Bank of Australia shapes the value of the AUD by determining the interest rates at which local banks lend to each other, which then feed through into borrowing costs across the economy. The central bank targets inflation of 2-3% by lifting or cutting rates as needed. When Australian rates are relatively high compared with those of other major central banks, the AUD tends to benefit, and vice versa when they are comparatively low. The RBA can also implement quantitative easing or tightening to adjust credit conditions, with the former seen as negative for the AUD and the latter viewed as positive.

China, Iron Ore, and Trade Balance Implications for AUD

China, as Australia’s largest trading partner, is a central driver of demand for Australian exports, and thus of the AUD. Stronger Chinese economic performance usually boosts Chinese purchases of Australian raw materials, goods, and services, supporting the currency, while weaker-than-expected Chinese growth can have the opposite impact. Surprises in Chinese growth data frequently translate into immediate moves in AUD pairs.

Iron Ore, Australia’s biggest export and primarily shipped to China, is another key determinant. Rising Iron Ore prices tend to underpin the AUD as they increase overall demand for the currency and improve the likelihood of a positive Trade Balance. Conversely, falling prices usually weigh on the AUD. A positive Trade Balance – when export revenues exceed import costs – typically supports the currency, while a negative balance tends to be a drag.