- AUD/JPY remains firms on multiple tailwinds.
- The RBA left its key interest rates steady at 4.35% on Tuesday.
- Investors await Japan’s Tokyo CPI data for fresh BoJ’s interest rate outlook.
The AUD/JPY pair rises further to near 99.60 in Thursday’s European session. The cross extends its winning spell for the ninth trading day on Thursday as the Australian Dollar (AUD) performs strongly on multiple tailwinds such as: Reserve Bank of Australia’s (RBA) hawkish interest rate outlook and China’s larger-than-expected monetary stimulus.
After leaving the Official Cash Rate (OCR) unchanged at 4.35% on Tuesday, the comments from the RBA indicated that it is unlikely to start reducing interest rates this year due to sticky price pressures and upbeat labor market health.
In addition to the RBA’s hawkish guidance, the announcement of a slew of stimulus packages by China has also strengthened the AUD’s outlook. It is worth noting that the Australia is the leading trading partner of China and an attempt to revive the Chinese economy will have a positive impact on the Australian Dollar.
Meanwhile, the Japanese Yen (JPY) will be guided by the Tokyo Consumer Price Index (CPI) data for August, which will be published on Friday. The Tokyo CPI excluding Fresh Food is estimated to have grown by 2%, slower than 2.4% in July. This would dampen market expectations for the Bank of Japan (BoJ) to hike interest rates further.
AUD/JPY gathers strength to break above the horizontal resistance plotted from September 2 high of 99.87 on a daily timeframe. Given a nine-day winning spree, the risk-barometer would thrash the immediate resistance. Upward-sloping 20-day Exponential Moving Average (EMA) near 97.40 suggests that the near-term trend is bullish.
The 14-day Relative Strength Index (RSI) has climbed above 60.00. A bullish momentum would trigger if the oscillator sustains above the same.
Going forward, a decisive break above September 2 high of 99.87 will result in further upside in the asset towards the psychological resistance of 100.00 and July 30 high of 101.78.
On the flip side, a downside move below September 25 low of 98.50 would drag the asset towards the 20-day EMA, which is currently trading around 97.40, followed by September 12 high near 95.70.
AUD/JPY daily chart
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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