- AUD/JPY's drop for six straight seasons and near six-month lows fall mostly comes from a weak Australian dollar, driven by soft CPI numbers and cautious RBA signals, rather than a strong yen.
- The yen itself has gotten some selective boosts from Bank of Japan rate-hike talks and intervention warnings. These developments only made the pair's slide worse.
- With conditions oversold, there might be opportunities for tactical long positions.
The AUD/JPY currency pair fell for six trading days straight, hitting a six-month low around 109.40-109.50 today. Earlier this month, the pair dropped sharply from above 114. This move stems from several factors market participants are watching closely.
Figuring out where this pair goes next means analysts must determine if the current downtrend is mostly due to a weaker Australian dollar, a stronger Japanese yen, or a mix of both.
Making Sense of the Aussie’s Slump
A few things have weighed on the AUD/JPY lately. The Australian dollar faces lower expectations, while the yen sees steady safe-haven demand.
The Australian dollar was sold off sharply after domestic inflation numbers were weaker than expected. This made markets less hopeful the Reserve Bank of Australia (RBA) would raise interest rates anytime soon.
Also, slower economic growth data from key regional trading partners has squeezed commodity-linked currencies. That’s sent the AUD/USD toward important multi-month support.
Looking at inflation, Australia’s monthly Consumer Price Index (CPI) climbed only 0.4% in August, a dip from July’s 1% jump. While the annual rate did climb to 4%, the monthly figure dampened hopes for more monetary tightening. Labor market data also added to this picture, with unemployment hitting 4.6% in August.
Meanwhile, the yen’s been consistently strong. Its strength stems from Bank of Japan (BoJ) policy signals and warnings against the currency falling too much. The BoJ hiked its policy rate to 1.25% in early September.
Japanese officials’ recent statements, alongside coordinated messages from the United States, point to more policy tightening or currency support measures coming soon.
Outlook For the Coming Weeks
What happens next depends on upcoming economic data. Market sentiment will react to Australia’s latest inflation and job figures, China’s economic activity (which affects commodity currencies), and any new remarks from the BoJ or Japanese officials.
Global risk appetite is also important. The AUD/JPY pair often moves with shifts in investor confidence for riskier assets and carry trade dynamics.
Traders watching specific events will pay close attention to the CPI release on October 28th. If inflation is higher than expected, it could rekindle talk of RBA rate hikes and squeeze short positions. But lower inflation would only confirm the current downward trend.
Market opinions on the RBA’s next step are split. Admiral’s figures show traders see about a one-in-three chance of another rate increase. Meanwhile, Paul Bloxham at HSBC expects a hike in the fourth quarter, probably in November.
For the AUD/JPY pair to really recover, we’d probably need clearer signs of a more hawkish RBA or less support for the yen. Until that happens, any gains will likely be temporary corrections within the broader downtrend that started after its late August peak.
Yes, it mostly is. Soft Australian CPI data and cautious guidance from the RBA have pressured the Aussie. Only a small part of this change comes from actual yen strength.
The yen has found support from expectations of a BoJ rate hike and official warnings about intervention. This has made the pair’s decline even bigger than what we’d see from just AUD weakness.
Sellers face a few risks. If Australian CPI data comes in hot, it could revive bets on an RBA hike. Also, a dovish shift from the BoJ could cause sharp rebounds; sellers should manage that risk carefully.