The AUD/JPY currency pair is experiencing a bullish trend, with the Australian Dollar (AUD) strengthening against the Japanese Yen (JPY). This upward momentum is primarily driven by the interest rate differential between the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ). The RBA's decision to hold the Official Cash Rate (OCR) steady at 4.35% in June, following three consecutive 25 basis point hikes, has contributed to the AUD's resilience. However, the potential for Japanese authorities to intervene could limit the pair's upside.
The technical analysis of the AUD/JPY pair suggests a near-term bullish bias, as it remains above the 100-day simple moving average (SMA) and the Bollinger Bands' 20-day middle band. The price is advancing towards the Bollinger upper band, with the Relative Strength Index (14) indicating firm but not overstretched upside momentum. Immediate resistance is expected at the Bollinger Bands' upper band at 114.10, followed by the May 13 high of 114.74 and the psychological level of 115.00.
On the downside, the initial support is at the July 20 low of 113.10, with the 100-day SMA at 112.75 and the Bollinger middle band at 112.55 serving as additional contention levels. A deeper cushion is provided by the lower band near 111.05.
The AUD's performance is significantly influenced by various factors. Firstly, the RBA's interest rate decisions play a crucial role, as relatively high interest rates compared to other major central banks support the AUD. The health of the Chinese economy, Australia's largest trading partner, is another key driver. Positive surprises in Chinese growth data often boost the AUD, while negative surprises can have the opposite effect. Additionally, the price of Iron Ore, Australia's largest export, directly impacts the AUD's value, with higher prices generally leading to a stronger currency.
The Trade Balance is another critical factor. A positive net Trade Balance strengthens the AUD, as it indicates a surplus demand for Australian exports. However, a negative Trade Balance can have the opposite effect. Market sentiment, particularly the risk-on/risk-off dynamic, also influences the AUD, with risk-on environments being positive for the currency.
