The AUD/JPY currency pair has shown a steady recovery, inching closer to a multi-week peak reached earlier in the week. The Australian dollar is benefiting from a hawkish approach taken by the Reserve Bank of Australia (RBA), while a generally positive market sentiment is further supporting its position. However, anticipated interest rate hikes from the Bank of Japan (BoJ) in 2024 are likely to limit the extent of any losses for the Japanese yen.
On Thursday, the AUD/JPY cross experienced a renewed interest during the Asian trading session, surging back above the 99.00 level, although it remains short of the three-week high made on Wednesday. The RBA’s recent communication has reinforced a commitment to maintaining a restrictive monetary policy until there is stronger evidence that inflation is consistently moving toward the target range. Recent data has not led to a significant shift in this outlook, as highlighted by contextual updates from RBA leadership.
Consumer inflation data released recently confirms that core CPI remains above the RBA’s target range, suggesting that rate cuts are unlikely in the foreseeable future. Furthermore, the RBA’s recent Financial Stability Review has indicated that risks of significant financial distress currently appear to be contained. A positive risk sentiment across markets also tends to undermine the appeal of the safe-haven yen, thereby favoring the Australian dollar.
Despite these supportive factors for the AUD, there is a contrasting expectation regarding the BoJ’s monetary policy direction. The minutes from the latest BoJ meeting revealed a consensus among board members regarding the necessity of adjusting monetary support to safeguard against potential inflation overshoots. From a technical view, the formation of a ‘Death Cross’ on the daily chart—a situation where the 50-day simple moving average falls below the 200-day simple moving average—suggests caution for bullish positions. Future gains for the AUD/JPY pair may face significant resistance around the 100.00 psychological barrier and the pivotal 200-day SMA.
