The Australian dollar was up 0.13% at about 114.30 per yen in European trade on Wednesday, with AUD/JPY later quoted at 114.18, after July inflation data strengthened expectations for tighter Reserve Bank of Australia policy. Headline CPI rose 3.5% year on year, easing from 3.8% in June but above the 3.3% consensus, while trimmed mean CPI printed at 3.6% versus 3.5% expected. Following the release, market pricing for an RBA hike at the 28–29 September meeting increased from 10% to 32%, and the July meeting minutes said several board members judged a rise “quite possible” if upside inflation risks materialise.
The yen weakened against the Australian currency, though it outperformed other major counterparts on expectations the Bank of Japan could raise rates at its September meeting. Technically, the cross stayed above the 20-period EMA at 113.09, while the RSI stood at 62.38; resistance was identified in the 114.66–114.93 area. Australia’s CPI is published monthly by the Australian Bureau of Statistics and, since April 2024, has shifted from quarterly to monthly methodology, with the year-on-year measure comparing the reference month with the same month a year earlier.
AUD/JPY Technical Strength and Short-Term Trading Opportunity
We are looking at a strong upward trend for the AUD/JPY pair as it trades around 114.18, well above its 20-day moving average of 113.09. This move comes after Australia’s inflation rate rose to 3.5% in July, beating expectations of 3.3%. We believe this hotter-than-expected data will keep the Australian dollar strong in the coming weeks.
We suggest traders buy short-term call options to profit from this upward momentum. The current Relative Strength Index of 62.38 shows the market has plenty of room to grow before becoming overbought. However, we must watch the resistance zone between 114.66 and 114.93, where sellers are likely to step in.
Interest Rate Expectations and Risk Management Strategy
Because the market is only pricing in a 32% chance of a rate hike for September, derivative contracts are currently underpriced. We can take advantage of this by trading interest rate futures to prepare for a potential 25-basis-point rate hike. Historically, similar sudden shifts in central bank expectations have triggered rapid price gains.
We must also watch the Bank of Japan, as expectations for their own rate hike in September could strengthen the Yen. To protect our trades, we should use capped call spreads that limit our risk if the Yen suddenly surges. This strategy allows us to capture gains while protecting our capital from sudden market turns.
