AUD\/JPY edged higher in Asian trade on Monday, hovering around 113.30 after slight losses in the prior session, with the Australian Dollar staying firm following China\u2019s latest policy stance. The People\u2019s Bank of China left the one-year and five-year Loan Prime Rates unchanged at 3.00% and 3.50%, respectively, and the steady setting offered a supportive backdrop for the trade-linked AUD.<\/p>\n
In Australia, the currency continued to draw support from domestic policy after the Reserve Bank of Australia kept the cash rate on hold this month, while repeating that inflation remains too high and that further tightening has not been ruled out. Even so, attention is shifting to whether the cycle has peaked, as a move higher is generally seen as unlikely unless second-quarter inflation materially surprises. Any further gains in the cross could be restrained if the Yen draws support from lingering foreign-exchange intervention risk and a more hawkish Bank of Japan tone, with focus turning to Tuesday\u2019s Japan PMI and Wednesday\u2019s BoJ Summary of Opinions, following a 25 basis point rate rise to 1.00% at the June meeting.<\/p>\n
We see the AUD\/JPY pair maintaining strength around the 113.30 level, supported by a stable Chinese monetary policy which benefits the proxy-linked Australian dollar. This carry trade has been profitable for a long time, fueled by the wide gap between Australian and Japanese interest rates. The current situation reflects a continuation of the trend we observed back through 2024 when the rate differential began to widen significantly.<\/p>\n
The Australian dollar is getting a lift from the Reserve Bank of Australia, which continues to warn that inflation is too high. With inflation having been stubbornly above the 2-3% target, running at 3.6% for much of 2024, this hawkish stance is justified. This sets up a potential for AUD upside if upcoming inflation data surprises, making short-term call options on the AUD an interesting play for the coming weeks.<\/p>\n
However, we must be cautious about further gains due to the risk of Japanese intervention to strengthen the JPY. We saw authorities spend over \u00a59 trillion in April and May of 2024 to support the currency, establishing a clear precedent for action when the yen weakens too quickly. The upcoming BoJ Summary of Opinions is a key event that could signal more aggressive policy tightening, potentially capping the rally.<\/p>\n
Given the high level of the pair and the threat of intervention, we believe derivative strategies should focus on managing this risk. Buying AUD\/JPY call spreads could be a way to capture further upside with a defined maximum loss. Alternatively, holding a long position while buying out-of-the-money JPY calls (or AUD\/JPY puts) offers a hedge against a sudden, sharp reversal triggered by Japanese officials.<\/p>\n","protected":false},"excerpt":{"rendered":"
AUD\/JPY hovers near 113.30, supported by steady China policy and RBA stance; intervention and BoJ risks cap.<\/p>\n","protected":false},"author":103,"featured_media":17039,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[73,84,88,46,45],"class_list":["post-55479","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-aud","tag-australia","tag-japan","tag-policy","tag-yen"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/55479","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=55479"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/55479\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17039"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=55479"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=55479"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=55479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}