- AUD/JPY has run into firm resistance near 121.00, with its bullish momentum stalling. This follows significant volatility, driven by shifts in global risk sentiment and the appeal of carry trades
- The pair is now consolidating in a range. Its next move will likely hinge on central bank hawkishness and other big global economic signals.
- Carry traders might see their positions at greater risk of unwinding during this consolidation. Still, the interest rate difference slightly favors the Australian dollar for now.
The AUD/JPY forex pair has seen its upward trend stall this week after a period of gains. The currency pair is facing resistance around the 112 level and has been consolidating between approximately 111.30 and 111.50 today.
This period of consolidation prompts consideration of whether a more significant pullback or a strengthening of the yen is imminent, potentially mirroring the corrective movement seen from late August to mid-September.
Technical Barrier Signals Exhaustion
Technical indicators suggest upward momentum might be running out of steam. While not breaking 112 doesn’t immediately signal a market downturn, it does resemble the peak seen in late August.
The pair currently trades below its 100-day moving average, and the 14-day Relative Strength Index (RSI) sits near 49, suggesting neutral momentum.
If it breaks below the short-term support at 111.00, we could see a further drop toward the 110.00 support level, where its 200-day exponential moving average sits.
Will the Yen Repeat Its Earlier Rebound?
Market conditions are different now. That earlier decline, which started after September 4, happened as risk appetite fell due to the US-Iran conflict and growing speculation about the Bank of Japan (BoJ) tightening its monetary policy.
Since then, the BoJ has raised interest rates by 25 basis points to 1.25%, the highest since 1995. Still, this wasn’t a unanimous decision, with two board members dissenting in a 7-2 vote.
Market participants see about a 30% chance of another rate hike to 1.50% in October. This suggests the yen might get less policy support than it did during its last rebound.
The AUD/JPY pair has been trading in a multi-week range lately. It doesn’t look like it has much room to move higher without a big push, perhaps from a major shift in market risk sentiment or surprising news from central banks.
What This Means for Carry Traders
Carry traders have often found the AUD/JPY appealing due to the interest rate gap between Australia and Japan. The Reserve Bank of Australia’s higher policy rates, particularly compared to the BoJ’s slower path to normalization, typically helped those who bought Australian dollars by borrowing yen.
Today’s price action near resistance levels reminds us of the risks in carry strategies. If momentum drops or markets get more volatile, positions can unwind. That’s especially true if global risk sentiment sours or if the BoJ hints at tightening money faster.
Carry traders might want to strengthen their risk management, cut back on leverage, or take some profits while the market consolidates.
This week’s pause in upward momentum doesn’t necessarily mean a big trend reversal is coming. But it does highlight why traders, especially those involved in trend following and carry trades, should be careful.
After gaining last week, AUD/JPY stalled near 112 resistance this week. Its momentum has slowed, but to call it a reversal, we’d need to see a clear break of key support levels.
Yes, a yen rebound, much like what we observed between late August and mid-September is possible if support levels don’t hold
This stall highlights a growing risk of positions unwinding, meaning carry traders should consider tighter risk controls. Less momentum can really pressure leveraged long AUD positions against the yen.