AUD/JPY Price Forecast: Keep bullish vibe above 97.50 on RBA caution
- AUD/JPY softens to near 97.85 in Friday’s early European session.
- The cross maintains a positive outlook, with the bullish RSI condition.
- The immediate resistance level is seen at 98.35; the initial support level is located at 97.28.
The AUD/JPY cross trades in negative territory around 97.85 during the European trading hours on Friday. However, the potential downside for the cross might be limited as traders reduce their bets on a Reserve Bank of Australia (RBA) rate cut after hotter Australian Consumer Price Index (CPI) inflation data.
Australia’s monthly CPI inflation rose at the fastest annual pace in a year in August, suggesting some upside to inflation that prompted traders to pare back the bets of imminent policy easing. According to Reuters, the possibility of a rate reduction at its November meeting eased to 50% from almost 70% chance before the data.
Technically, the positive view of AUD/JPY remains in place as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. Further upside looks favorable, with the 14-day Relative Strength Index (RSI) standing above the midline near 60.30. This suggests the bullish momentum in the near term.
On the bright side, the key upside barrier for the cross emerges at 98.35, the high of September 15. Sustained trading above the mentioned level could pave the way to 98.60, the upper boundary of the Bollinger Band. A decisive break above this level could pick up more momentum and aim for the January 7 high of 99.17, followed by the 100.00 psychological level.
On the other hand, the initial support level for AUD/JPY is located at 97.28, the low of September 24. Any follow-through selling below this level could expose 96.31, the low of September 3. The additional downside filter to watch is 96.00, the 100-day EMA, and the round mark.
AUD/JPY daily chart
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Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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