AUD/JPY Pullback Continues Despite Strong China Trade Data

Key Moments

Risk Aversion Weighs on AUD/JPY

AUD/JPY ended its three-session winning run, hovering around 111.30 in Asian trading on Friday. The cross came under pressure as the Australian Dollar (AUD) weakened amid a broad shift into safe-haven assets. Rising geopolitical tensions in the Strait of Hormuz unsettled investors and raised doubts about the near-term reopening of this critical shipping corridor, undermining risk-sensitive currencies such as the AUD.

China Trade Data Sends Mixed Signal for Australia

Fresh trade figures from China delivered a nuanced picture that is closely watched by markets given Australia’s strong trade links with the Chinese economy. In US Dollar terms, China’s June Trade Balance printed at $112.5 billion, ahead of the $107.0 billion consensus, but below the prior $125.62 billion reading. Measured in Chinese Yuan, the Trade Surplus widened to 767 billion, also exceeding the 740 billion estimate while remaining under the earlier 859.05 billion level.

Export and import dynamics indicated some cooling momentum. July exports rose 23.9% year-over-year, down from a 27% gain in June. Imports grew 27.5% over the same period, easing from the previous 36% expansion. For an economy like Australia’s that is heavily engaged with China through trade, this combination of an above-forecast surplus and slower growth in trade flows presents a complex backdrop for the AUD.

RBA Outlook Supports Medium-Term AUD Bias

On the policy front, Rabobank’s FX team continues to believe that further tightening by the Reserve Bank of Australia (RBA) remains on the table. They argue that “there is still risk of one more rate hike this year in November.” The strategists highlight that “the market will be hoping that the RBA’s August 11 policy meeting will provide more clarity on rate hike risks,” as investors reassess the likely policy trajectory.

Within this framework, Rabobank maintains “a modest upside bias in Australian Dollar out to 12 months.” That stance provides some counterbalance to near-term risk-off pressures and lays out a potentially constructive medium-term view for AUD, including in crosses such as AUD/JPY.

Yen Retreat Tests Durability of Intervention Impact

Despite the current setback, AUD/JPY may find a floor if the Japanese Yen (JPY) continues to retrace some of its recent strength. The Yen’s earlier appreciation was driven by coordinated currency intervention involving Tokyo and Washington, stoking expectations that authorities could act again if volatility in USD/JPY or other Yen pairs spikes.

However, the speed of the Yen’s pullback underscores persistent doubts about how effective direct intervention can be in the face of underlying headwinds. The JPY remains challenged by wide interest rate differentials, mounting fiscal concerns, and elevated energy and import costs, all of which continue to exert structural pressure on the currency.

Asian FX Moves and Potential USD/JPY Intervention

Analysts at ING link recent official action in USD/JPY to broader weakness in Asian currencies. They argue that “large falls in the Japanese yen, Korean won and Taiwanese dollar might have been one of the reasons the US Treasury stepped in with USD/JPY intervention,” and add that the measure “could be well-timed if the Fed doesn’t hike and the Dollar falls,” potentially synchronizing policy dynamics with attempts to stabilize the Yen.