Below 109.50: AUD/JPY price forecast weakens as bearish signals strengthen downside bias

AUD/JPY eases towards 109.30. The decline comes in early European trading on Tuesday.
Below the 100-day SMA, the cross retains a bearish outlook, reinforced by negative RSI momentum.
108.85 is the initial downside target, while 110.00 marks immediate resistance.

AUD/JPY is trading lower near 109.30. During Tuesday’s early European session, substantial official intervention is supporting the Japanese Yen (JPY) against the Australian Dollar (AUD).

Japan intervened in currency markets on three days between 30 July and 3 August, quarterly data published on Monday by the Ministry of Finance (MOF) showed. At 7.98 trillion JPY ($50.36 billion), the 30 July operation was the largest. It surpassed the previous record of 6.28 trillion JPY set on 30 April.

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Tsuyoshi Ueno, senior economist at NLI Research Institute, said: "The enormous scale of intervention underscored the government's sense of urgency to stem the yen's decline,"

Further support for the JPY might come from expectations of additional Bank of Japan (BoJ) rate increases. Released on Tuesday, the summary of the 29-30 October meeting showed that many board members consider a near-term increase necessary. That signals a good chance of a December move.

JPY outlook supported by BoJ rate-hike expectations and JGB market dynamics

The JPY’s strong performance this year stands out to Rabobank analysts, who note that “the JPY is the second best performing G10 currency in the half year to date.” While acknowledging that this “strong ranking has been obtained with the support of sizeable FX intervention over 3 days during the summer, which included joint support with the US Treasury,” they emphasise that the currency has also held its ground recently. Their shorter-term assessment is that “the JPY has managed to outperform the USD on a 1-month view with the market displaying a clear reluctance to push USD/JPY above the 158.70 area which coincides with the 200-day sma.”

Although Rabobank notes that the “sell-off in the Nikkei 225 at the end of last week depressed market expectations regarding the chances of a December BoJ rate hike,” the analysts maintain that “the strength of September wage data supports the potential for further policy tightening both next month and into next year.” They believe this setting “suggests USD/JPY can edge lower to the 155.00 area on a 3-month view.” They also identify that “another component of any JPY turnaround would likely be a more robust tone in the JGB market,” which “could contribute to a more supportive backdrop for the JPY in the months ahead.”

Turning to domestic conditions, Rabobank highlights that “Japan’s primary deficit is better than the G7 average and there is speculation that Japan’s huge asset managers may be tempted to repatriate to take advantage of higher JGB yields. This would have positive implications for the JPY.” For the coming week, the analysts note that “Q3 GDP data and October national CPI inflation, both due next week, will be of interest to BoJ watchers,” while their overall assessment is that they “remain cautiously optimistic on the medium-term outlook for the JPY.”

Technical Outlook: 100-day SMA keeps AUD/JPY under bearish pressure

Trading below both the 20-day and 100-day simple moving averages leaves AUD/JPY with a bearish near-term bias on the daily chart. The price is retreating towards support at the lower Bollinger Band. Meanwhile, the Relative Strength Index (14) is around 41, beneath the neutral 50 threshold. This suggests sellers remain in control despite the recent recovery from oversold territory.

108.85, the lower Bollinger Band, provides immediate support. A decisive breach would bring the 6 November low of 108.24 into view, with the 13 February low of 107.70 next.

For a recovery, the first resistance is the psychological 110.00 mark, ahead of the 20-day SMA at 110.30. Beyond that, the principal barrier is the 110.70-110.75 range, where the upper Bollinger Band meets the 100-day SMA. A recovery above this concentrated supply zone would be needed to reduce the prevailing bearish bias.

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

Australian Dollar: Key Questions

Australian Dollar drivers: which factors matter most?

Interest rates set by the Reserve Bank of Australia (RBA) are among the main influences on the Australian Dollar (AUD). Australia’s resource wealth also makes the price of iron ore, its largest export, a key driver. Other influences include conditions in China, the country’s biggest trading partner, alongside Australian inflation, economic growth and the trade balance. Investor appetite for risk matters too: a shift towards riskier assets, known as risk-on, supports the AUD, whereas a preference for safe havens reflects risk-off sentiment.

RBA policy: how do decisions affect the Australian Dollar?

By setting the interest rate at which Australian banks lend to one another, the Reserve Bank of Australia (RBA) affects borrowing costs across the economy and, in turn, the Australian Dollar (AUD). Its primary objective is stable inflation of 2-3%, pursued through increases or reductions in interest rates. Rates that are relatively high compared with those of other major central banks support the AUD; relatively low rates have the reverse effect. Quantitative easing and tightening offer additional ways for the RBA to shape credit conditions. Easing is negative for the AUD, while tightening is positive.

China’s economy: why does its performance matter for the Australian Dollar?

As Australia’s biggest trading partner, China has a substantial influence on the Australian Dollar (AUD). A healthy Chinese economy buys more Australian raw materials, goods and services. That raises demand for the AUD and lifts its value. When Chinese growth falls short of expectations, the reverse applies. Surprises in Chinese growth figures, whether positive or negative, therefore often affect the Australian Dollar and its currency pairs directly.

Iron ore prices: what is the link to the Australian Dollar?

At $118 billion annually, according to 2021 data, iron ore is Australia’s biggest export, with China its main destination. Its price can consequently influence the Australian Dollar. Higher iron ore prices generally lift overall demand for the currency, supporting the AUD; falling prices tend to have the opposite effect. Rising iron ore prices also increase the likelihood of an Australian trade surplus, another supportive factor for the AUD.

Trade balance: how does it influence the Australian Dollar?

Export receipts minus import payments make up a country’s trade balance, another influence on the Australian Dollar. Strong overseas demand for Australian exports can lift the currency when demand from foreign buyers exceeds Australia’s spending on imports. A positive net trade balance therefore supports the AUD, while a negative balance has the reverse effect.