AUD/JPY Price Forecast: Weakens below 109.50 as bearish signals reinforce downside bias

AUD/JPY softens to near 109.30 in Tuesday’s early European session.
Negative outlook of the cross remains intact below the 100-day SMA, with bearish RSI momentum.
The first downside target is seen at 108.85; the immediate resistance level to watch is 110.00.

The AUD/JPY cross trades in negative territory around 109.30 during the early European trading hours on Tuesday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD), bolstered by heavy official intervention.

According to quarterly figures released by the Ministry of Finance (MOF) on Monday, Japan conducted currency market interventions on three days between July 30 and August 3. The largest intervention took place on July 30, totaling 7.98 trillion JPY ($50.36 billion), exceeding the previous record of 6.28 trillion JPY set on April 30.

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

Additionally, expectations of further rate hikes from the Bank of Japan (BoJ) might contribute to the JPY’s upside. The summary for the October 29-30 meeting released Tuesday indicated that many board members see a near-term interest rate hike as necessary, signaling there’s a good chance for a December move.

Yen gains support as BoJ tightening hopes and JGB dynamics bolster JPY outlook

Analysts at Rabobank highlight that the JPY has been a standout performer this year, noting that “the JPY is the second best performing G10 currency in the half year to date.” They acknowledge 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,” but also stress that the currency has recently held its own. On a shorter horizon, they point out 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.”

Rabobank observes 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,” yet they argue that “the strength of September wage data supports the potential for further policy tightening both next month and into next year.” In their view, this backdrop “suggests USD/JPY can edge lower to the 155.00 area on a 3-month view.” They add 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.”

On the domestic side, Rabobank notes 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.” Looking ahead, they flag that “Q3 GDP data and October national CPI inflation, both due next week, will be of interest to BoJ watchers,” and conclude that they “remain cautiously optimistic on the medium-term outlook for the JPY.”

Technical Analysis: AUD/JPY retains a negative bias below the 100-day SMA

In the daily chart, AUD/JPY keeps a bearish near-term tone as spot holds below the 20-day simple moving average and the 100-day simple moving average. Price is slipping back toward the lower Bollinger Band suppor, while the Relative Strength Index (14) at about 41 stays below the neutral 50 line, hinting that downside pressure remains in control despite the recent bounce from oversold territory.

On the downside, the lower limit of Bollinger Band at 108.85 forms immediate support level. A clear break below this floor would expose the November 6 low of 108.24, followed by the February 13 low of 107.70.

On the bright side, initial resistance level stands at the 110.00 psychological level, en roure to the 20-day SMA at 110.30. The key hurdle to watch is the 110.70-110.75 zone, representing the upper boundary of Bollinger Band and the 100-day SMA, a dense supply zone that would need to be reclaimed to ease the prevailing bearish bias.

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

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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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