AUD\/JPY recouped earlier losses to trade around 114.30 in Asian hours on Thursday, supported by a firmer Australian Dollar after stronger labour-market figures. The Australian Bureau of Statistics said the unemployment rate held at 4.4% in June, matching the 4.4% consensus, while employment rose by 76.3K. That compared with a 44K gain in May, revised from 40.3K, and exceeded the market forecast for a 15K increase.<\/p>\n\n
The cross was capped as the Japanese Yen strengthened, with higher energy costs adding to inflation pressure and lifting expectations that the Bank of Japan could quicken its rate-hike path. Separately, reports said BoJ officials are open to faster tightening than markets anticipate, while intervention risk remained in focus after Finance Minister Satsuki Katayama said authorities are ready to take decisive action against excessive currency weakness. Attention turns to Japan\u2019s June consumer inflation data due on Friday.<\/p>\n\n
We are seeing incredible strength in the Australian job market, with a massive 76.3K jobs added in June against a tiny 15K forecast. This strong data suggests the Reserve Bank of Australia will keep its cash rate high, which historically keeps the Australian Dollar strong. Derivative traders can take advantage of this by buying short-term AUD\/JPY call options to ride the upward trend.<\/p>\n\n
However, we must prepare for sudden Japanese Yen strength as Japan’s core inflation continues to hover well above the Bank of Japan’s 2% target. With Finance Minister Katayama warning of direct intervention to stop Yen weakness, the risk of a sudden drop is very real. We advise buying out-of-the-money AUD\/JPY put options to cheaply protect your portfolio against a sharp downside spike.<\/p>\n\n
Because we are facing a tug-of-war between a strong Australian economy and a tightening Japanese central bank, volatility is bound to surge. We recommend using long straddle or strangle option strategies to profit from big price moves in either direction. During past major Bank of Japan policy shifts, this currency pair has easily swung by more than 300 pips in a matter of days.<\/p>\n\n\n\n