AUD/JPY Navigates at 102.50 Amid Economic Shifts

Key Points

• AUD/JPY shows an ascending wedge, with support at 102.00 and resistance at 105.00, suggesting a cautious bullish momentum.
• Lower retail sales in Australia and Japan hint at economic cooling, influencing AUD/JPY rates.
• RBA may cut rates to 3.1% by 2025, while BOJ maintains a dovish stance, affecting currency strength.

The AUD/JPY currency pair navigates a complex financial landscape marked by microeconomic shifts and macroeconomic interventions. Currently, the pair trades around 102.50, having faced downward pressure. Various factors, including economic indicators, central bank policies, and specific market events, have all influenced this movement and played significant roles in its recent performance.

Rising Inflation and Falling Sales Influence on AUD/JPY

Recent data from Australia and Japan has profoundly impacted the AUD/JPY dynamics. Australia reported lower-than-expected retail sales figures and an unexpectedly high inflation rate. Japan also mirrored this trend with weaker retail trade figures. These indicators, which typically signal economic cooling, suggest a less aggressive stance from the central banks. However, the reaction in currency markets has been nuanced, reflecting not just economic outcomes but anticipated policy responses.

Future RBA Rates: Expected Cuts from 4.35% to 3.1%

Mixed economic signals are emerging, and the Reserve Bank of Australia (RBA) scrutinises them. The Reserve Bank of Australia, maintaining a relatively hawkish stance with a current rate of 4.35%, is projected by Commonwealth Bank forecasts to implement rate cuts, bringing it down to 4.1% in 2023 and further to 3.1% by 2025. Conversely, the Bank of Japan (BOJ) continues to adopt a dovish stance, supported by domestic data and has recently intervened to strengthen the yen. This diverging policy path between the two banks is a critical element shaping the AUD/JPY pair.

AUD/JPY Analysis: Key Levels at 105.00 and 101.51

From a technical standpoint, the AUD/JPY pair exhibits an ascending wedge pattern, hinting at potential breakout points. Resistance levels are identified at 105.00, with historical peaks around 105.43 dating back to April 2013. Support levels are firmer near 102.00 and 101.51, coinciding with the 9-day Exponential Moving Average (EMA). Additionally, with the Relative Strength Index (RSI) positioned above 50, the momentum appears somewhat bullish, although the overarching market sentiment remains cautious.

Japanese Rate Cuts to Stir AUD/JPY Market

The market is on high alert for potential interventions from Japan, particularly after recent governmental actions to bolster the yen. The sustained interest rate differential between Japan and Australia is expected to cause depreciation pressures on the Japanese yen mainly. Furthermore, Gareth Aird of CBA highlights the outlook by indicating they expect a 25 basis point rate cut each quarter in 2025. This approach might increase the currency pair’s volatility and alter its future course.