AUD/JPY rose about 0.4% on Wednesday, supported by the Australian Dollar after hawkish Reserve Bank of Australia minutes. The minutes said inflation risks have increased and the Board is prepared to tighten policy again.
In Japan, former BoJ board member Adachi said an April rate rise is likely once enough data is available. Japan’s Q4 GDP printed at 0.1% quarter on quarter, below expectations, but pricing for an April move remained.
Key Data And Near Term Catalysts
Key releases on Thursday are Australian January jobs figures and Japan’s January national CPI. The prior core CPI reading excluding fresh food was 2.1% year on year.
The pair traded near 109.00 and stayed above the rising 50-day EMA near 106.50 and the 200-day EMA at 100.81. The uptrend from the late November low near 100.35 remains in place.
The Stochastic Oscillator sat near the midline, suggesting balanced momentum. Resistance is at 110.790, with 112.00 as the next level, while support is near 108.00 and the 50-day EMA at 106.490.
The Australian Dollar is influenced by RBA rate settings, Chinese demand, inflation, growth, and trade balance. Iron ore is Australia’s largest export, worth $118 billion a year in 2021.
The policy divergence between the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) continues to be the dominant theme for the AUD/JPY cross. We see this as a continuation of the dynamic observed throughout 2025, where the RBA maintained a hawkish stance. With the RBA cash rate currently holding at 4.35% and the BoJ rate at a mere 0.10%, the interest rate differential provides a powerful tailwind.
Strategy Considerations And Positioning
On the Australian side, recent data shows inflation remains persistent, with the latest quarterly CPI coming in at 3.8%, still above the RBA’s target band. While iron ore prices have softened to around $125 per tonne due to mixed signals from China, whose manufacturing PMI recently dipped to 49.5, the high yield on the AUD provides strong underlying support. This contrasts with the situation a year ago when we were anticipating these central bank moves.
Meanwhile, the BoJ remains cautious, having only exited negative interest rates in mid-2024 and showing little appetite for aggressive tightening. Japan’s national core CPI has eased to 2.5%, reducing pressure on the central bank to act swiftly. This reinforces the yen’s weakness and makes the AUD/JPY carry trade attractive for traders willing to fund positions in the low-yielding yen.
Given this environment, we believe buying AUD/JPY call options is a prudent strategy for the coming weeks. This approach allows traders to profit from potential upside moves toward the 116.00 level while strictly defining the maximum risk to the premium paid. It capitalizes on the strong underlying uptrend without being fully exposed to sudden shifts in risk sentiment.
For those looking to generate income, selling out-of-the-money puts could also be considered, especially with the pair consolidating above the 50-day moving average, currently near 112.50. This strategy collects premium by taking the view that the substantial interest rate differential will provide a floor for the pair against minor pullbacks. Traders should, however, remain watchful of key employment and inflation data from both nations.
