AUD/JPY Climbs but Faces Resistance Below 100-Day Average

Key Moments

Cross Recovers, Yet Sentiment Stays Cautious

AUD/JPY is trading higher around 112.80 during Friday’s early European session, extending a rebound above 112.50. Despite the intraday strength, the pair continues to show a bearish bias as it remains constrained beneath its 100-day simple moving average (SMA). The immediate upside hurdle is seen at 113.20, while initial support is positioned at 111.80.

The advance in the cross comes against a backdrop of firming demand for the Japanese Yen, as traders increase wagers that the Bank of Japan (BoJ) could move further on interest rates. This shift in expectations is perceived as a potential headwind for additional AUD/JPY gains.

BoJ Commentary Fuels Rate-Hike Speculation

BoJ board member Hajime Takata stated on Wednesday that the central bank should implement interest rate hikes flexibly to address mounting inflation pressures, rather than adhering to a pre-set semiannual schedule that markets had anticipated. According to analysts cited, this has raised the prospect that the BoJ could deliver a more hawkish outcome than previously anticipated at its meeting scheduled for September 17 to 18.

“This feels less like a short squeeze and more like the market cautiously reassessing a more hawkish BOJ path,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management in Tokyo. “Markets are finally starting to buy into the idea that Japan may continue normalizing policy into 2027,” Loo added.

BNY Flags Limits of FX Intervention

Strategists at BNY highlight doubts over the effectiveness of foreign exchange intervention as a standalone tool to drive a sustained appreciation of the Japanese Yen. They note that, despite recent official activity, they “remain skeptical that Japanese authorities can generate sustained JPY appreciation through intervention alone.”

BNY’s view is that the authorities’ policy approach “remains reflationary,” and that “today’s backdrop is very different from the early Abenomics period: inflation is already materially higher and structural reform is less prominent.” However, they emphasize that this stance “does not mean the yen must weaken further.”

Technical Picture: Rebound Meets Overhead Barriers

From a technical standpoint, AUD/JPY maintains a negative short-term structure on the daily chart, trading below both the 100-day SMA and the middle line of the Bollinger Bands. This arrangement indicates that rallies are being restricted by a cluster of resistance from these averages. The 14-day Relative Strength Index (RSI) hovering near 45 points to waning upside momentum, without yet signaling oversold conditions.

On the topside, a decisive move above the 100-day SMA around 113.20, followed by a break of the Bollinger middle band near 113.40, would be required to significantly alleviate the current downside pressure. Only then would the door open toward the upper Bollinger band, located close to 115.05.

On the downside, the lower Bollinger band near 111.80 is the critical first line of support. A sustained decline through this area would bring the July 3 low at 111.33 into view, followed by the August 4 trough at 110.01 if selling accelerates.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Australian Dollar: Key Drivers to Watch

The Australian Dollar (AUD) is influenced heavily by the interest rate settings of the Reserve Bank of Australia (RBA). As a major exporter of commodities, Australia’s currency is also closely linked to the price of Iron Ore, its largest export. Additional drivers include the health of the Chinese economy, domestic inflation trends, overall economic growth, the Trade Balance, and shifts in global risk appetite. A risk-on environment is typically supportive for AUD, while risk-off sentiment tends to weigh on the currency.

Role of the Reserve Bank of Australia

The RBA exerts a central influence on AUD by determining the benchmark interest rate at which Australian banks lend to one another, which then flows through to broader borrowing costs in the economy. The central bank’s primary objective is to keep inflation within a 2-3% range over time, adjusting rates higher or lower as needed.

When Australian interest rates stand relatively high compared with those of other major central banks, the AUD tends to find support, while relatively low rates can be negative for the currency. Beyond rate decisions, the RBA may also employ quantitative easing or tightening to steer credit conditions, with easing generally viewed as AUD-negative and tightening as AUD-positive.

China, Iron Ore, and Trade Balance Effects

China, as Australia’s largest trading partner, plays a pivotal role in shaping the AUD’s performance. Stronger Chinese economic activity usually boosts demand for Australian raw materials, goods, and services, underpinning the currency. Conversely, slower-than-expected Chinese growth can dampen demand and weigh on AUD. Surprises in Chinese economic data often feed directly into moves in AUD pairs.

Iron Ore, Australia’s biggest export by value, is another central factor for AUD. When Iron Ore prices rise, demand for AUD generally increases as buyers seek to pay for Australian exports, which can lift the currency. Falling Iron Ore prices tend to have the reverse impact. Higher prices for this commodity also contribute to the likelihood of a stronger Trade Balance for Australia, which is supportive for AUD.

The Trade Balance itself – the difference between export revenues and import costs – is a further determinant of AUD valuation. A sustained positive Trade Balance reflects net foreign demand for Australian goods and services, which typically bolsters the currency, whereas a negative balance can exert downward pressure.