AUD/JPY fell to around 97.70 during Thursday’s early Asian session, experiencing a daily decline of 0.43%. This drop followed Australia’s Unemployment Rate rising to a four-year high of 4.5% in September.

The Australian Bureau of Statistics reported that the jobless rate increased from 4.3% in August, exceeding the anticipated 4.3%. In addition, Australia’s Employment Change was 14.9K in September, below the expected 17K.

Impact of Employment Data on the Aussie

The weakening employment data impacted the Aussie, suggesting a softer labour market. This prompted discussions about possible interest rate reductions by the Reserve Bank of Australia (RBA), given the observed trends in consumer spending and inflation.

In Japan, political uncertainty could delay the Bank of Japan’s (BoJ) potential rate hikes. This scenario may impact the Japanese Yen, possibly limiting further downside for the AUD/JPY cross as a new leader seeks support following a coalition’s dissolution.

The Reserve Bank of Australia affects the Australian Dollar’s value by setting interest rates, while the Chinese economy’s health, its Trade Balance, and Iron Ore prices also play major roles. These factors collectively determine demand and hence the strength or weakness of the AUD in the global market.

AUDJPY Market Outlook

The AUD/JPY is under pressure after today’s Australian unemployment data hit 4.5%, a level we have not seen since late 2021. This sharp increase strengthens the case for the Reserve Bank of Australia to cut interest rates next month. In fact, overnight index swaps are now pricing in a more than 70% probability of a 25-basis-point cut at the November RBA meeting.

We see this as an opportunity to position for further AUD weakness against the yen in the coming weeks. Derivative traders could consider buying AUD/JPY put options to capitalize on a potential slide towards the 96.00 psychological level. The recent spike in one-month implied volatility to over 12% suggests the market is bracing for larger price swings, making options strategies particularly relevant.

However, we must watch the situation in Japan, where political instability could slow the Bank of Japan’s policy normalization. The BoJ has been very cautious since ending negative interest rates back in 2024, and this new uncertainty makes another rate hike before year-end less likely. This potential for JPY weakness could provide some support for the currency pair, preventing a complete collapse.

The bigger picture for the Aussie dollar is also clouded by its key trading partners and commodity prices. We are seeing iron ore prices hover around $115 per tonne, well off their highs, as concerns linger about China’s economic momentum. All eyes will be on China’s Q3 GDP data next week, as a weak number would further pressure the AUD.

Given these cross-currents, the path of least resistance for AUD/JPY appears to be lower in the near term. The Australian labor market data is a hard fact driving RBA expectations, while the Japanese political story is still developing. We believe selling out-of-the-money AUD/JPY call options could be a prudent strategy to collect premium while maintaining a cautiously bearish outlook.

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