The AUD/JPY currency pair is experiencing a positive trend, with the Australian Dollar (AUD) gaining strength against the Japanese Yen (JPY). This upward momentum is primarily attributed to the recent peace deal between the United States (US) and Iran, which has boosted riskier assets. The market's focus is now on the upcoming interest rate decisions by the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ), with traders anticipating a pause in rate hikes from both central banks.
The RBA is expected to maintain its key interest rate at 0.10%, marking the first time this year. This decision comes as money markets reduce bets on further tightening, indicating a potential shift in the central bank's stance. The RBA Governor, Michele Bullock, will be closely watched during the press conference to gauge her views on the current rate and future monetary policy.
In contrast, the BoJ is anticipated to raise its benchmark interest rate to 1.25% in the fourth quarter, a significant move that reflects the bank's determination to combat inflation. Despite the absence of its governor, the BoJ's decision is expected to be supported by a Reuters poll, which projects a rate hike in June followed by another in Q4.
From a technical analysis perspective, the AUD/JPY pair exhibits a constructive bias, trading above the 100-day simple moving average (SMA) and the lower Bollinger Band. This suggests underlying demand for the AUD against the JPY. However, the price is consolidating near the Bollinger mid-line, with the Relative Strength Index (RSI) hovering around 50, indicating a potential pause in the uptrend.
Resistance levels are identified at 113.60 and 114.92, while support is found at 112.25 and 111.90. A break below the 100-day SMA could weaken the bullish structure and open the door to a deeper corrective slide.
The Japanese Yen (JPY) is a highly traded currency, influenced by various factors such as the performance of the Japanese economy, the Bank of Japan's policy, and risk sentiment among traders. The BoJ's mandate for currency control and its past interventions to lower the Yen's value are notable. The ultra-loose monetary policy between 2013 and 2024 contributed to the Yen's depreciation, but the gradual unwinding of this policy has provided some support.
The BoJ's stance has led to a widening policy divergence with other central banks, particularly the US Federal Reserve, resulting in a widening differential between 10-year US and Japanese bonds, favoring the US Dollar. However, the BoJ's recent decision to abandon the ultra-loose policy and interest-rate cuts in other major central banks are narrowing this differential.
The JPY's safe-haven status is another crucial aspect. During market stress, investors often seek refuge in the JPY, viewing it as a reliable and stable currency. This behavior is expected to strengthen the Yen's value against other currencies perceived as riskier investments.
In conclusion, the AUD/JPY pair's positive trend is influenced by external factors and central bank decisions. The RBA's and BoJ's interest rate decisions will play a pivotal role in shaping the currency pair's trajectory. The technical analysis suggests a constructive bias, but the market's focus on interest rates and risk sentiment will be crucial in determining the pair's future direction.
