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Australian Dollar steadies vs Japanese Yen as hawkish RBA signals offset JPY strength

  • AUD/JPY trades around 110.50 on Friday, little changed on the day.
  • Hawkish comments from RBA officials strengthen expectations of further interest-rate hikes.
  • The Japanese Yen benefits from prospects of monetary tightening following elevated producer price data.

AUD/JPY trades around 110.50 on Friday at the time of writing, posting a modest 0.04% decline on the day. The pair remains broadly stable as both the Australian Dollar (AUD) and the Japanese Yen (JPY) benefit from growing expectations of monetary tightening by their respective central banks.

Australia's economic calendar remains empty on Friday, leaving investors focused on recent hawkish comments from Reserve Bank of Australia (RBA) officials. These remarks have strengthened expectations of higher interest rates, with markets now pricing in around 50 basis points of additional tightening by the end of 2027, which would bring the policy rate to around 4.85%, its highest level since 2008.

RBA Assistant Governor Sarah Hunter said on Tuesday that the central bank may need to raise interest rates again if inflation proves more persistent than expected. Her comments keep alive the possibility of another rate hike at the September meeting.

RBA Deputy Governor Andrew Hauser also struck a hawkish tone, saying that inflation remains "one big problem" for the Australian economy. Hauser added that the central bank stands ready to raise interest rates further if it believes such action is necessary.

Against this backdrop, markets now see a 72% chance that the RBA will raise its Official Cash Rate (OCR) to 4.6% at its next meeting, up from 54% at the start of the month, according to the RBA Rate Tracker. These expectations could help limit downside pressure on the Australian Dollar.

On the Japanese side, data released on Friday also strengthen the case for further monetary tightening by the Bank of Japan (BoJ). The Producer Price Index (PPI) rose 7.6% YoY in August, following a 7.7% increase in July and exceeding market expectations for a sharper slowdown to 7.4%.

The Japanese Yen therefore remains supported by growing expectations of more aggressive monetary tightening from the BoJ. The ongoing unwinding of carry trades and increased capital repatriation also provide support to the Japanese currency.

However, the JPY's upside potential remains limited by the sharp rise in Oil prices. The persistent conflict between the United States (US) and Iran, with no signs of de-escalation, keeps global inflation risks elevated and weighs on broader market sentiment.

AUD/JPY technical analysis

Chart Analysis AUD/JPY

In the daily chart, AUD/JPY trades at 110.49, maintaining a bearish near-term tone as price holds under both the 200-day simple moving average (SMA) at 110.92 and the 100-day SMA at 113.05. This stack of overhead averages suggests rallies are likely to face supply, while the Relative Strength Index (14) around 31 hints that downside momentum is stretched but not yet in outright oversold reversal territory.

On the downside, initial support is seen at the recent horizontal floor near 109.24, ahead of a stronger base around 107.70 if selling pressure resumes. On the topside, the 200-day SMA at 110.92 is the first barrier that bulls would need to reclaim to ease immediate pressure, with further resistance aligning at the 100-day SMA near 113.05 and then the more distant horizontal cap around 115.00.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Author

Ghiles Guezout

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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