AUD/JPY has dropped to around 100.60 in early European trading on Tuesday. This decline stems from concerns over possible intervention by Japanese officials. The Japanese Yen (JPY) has strengthened against the Australian Dollar (AUD) after Japan’s Finance Minister cautioned about rapid currency shifts last week. From a technical perspective, the outlook for AUD/JPY is still positive. It has support above the 100-day Exponential Moving Average on the daily chart. The 14-day Relative Strength Index shows bullish momentum, currently at 58.25, which is above the midpoint. Resistance is found at 101.03, with the potential for the pair to rise to 101.70 and possibly even 102.30.

Key Support and Influences

On the downside, the 100.00 level is crucial support for AUD/JPY. If it falls below this, it could drop to 98.97, with further support between 97.45 and 97.35. The AUD is significantly affected by interest rates set by the Reserve Bank of Australia, the price of iron ore, and the performance of the Chinese economy. Higher interest rates tend to support the AUD, while quantitative tightening might provide additional support. Iron ore, Australia’s largest export, has a direct impact on the AUD’s value. The Trade Balance, which represents the difference between exports and imports, plays an essential role in determining the AUD’s strength. A positive Trade Balance boosts the currency. Currently, the AUD/JPY pair is around 100.60, balancing between a technically strong position and concerns over Japanese intervention. The daily chart’s moving averages suggest an uptrend, but officials’ warnings create short-term risks. Thus, a cautious approach is advisable instead of a definitive bet in one direction. The concern over intervention is valid, as the Ministry of Finance has intervened before. For instance, significant action occurred at the end of 2022 when the USD/JPY exceeded 150. Now, with it trading above 162, the pressure is high. Any sudden official move could lead to a swift decline across all yen pairs, including AUD/JPY.

Australian Fundamentals and Global Factors

Presently, Australian fundamentals are supportive, helping to keep the cross high. The Reserve Bank of Australia has maintained its cash rate at 4.50% following last month’s Q3 CPI data, which was slightly above expectations at 3.8%. This interest rate differential keeps the carry trade appealing. External factors also support a stronger AUD. Iron ore prices have been resilient, trading above $125 per tonne on the Dalian exchange. Moreover, China’s Caixin Manufacturing PMI came in at 50.7, suggesting stable, modest growth in the industrial sector, which benefits Australian exports. For derivative traders, this situation presents a chance to use options to mitigate the risk of intervention. A bull call spread that targets the 101.70 to 102.30 resistance area could allow for profits from further gains while capping potential losses. This strategy is safer than a straightforward long position, which could suffer significant downside risk due to an unexpected announcement. For those currently holding long positions, buying put options with strikes near the 100.00 psychological level could serve as a solid hedge. A decisive break below this level could trigger a wave of selling towards the key support zone around 97.35, helping protect existing gains against sudden market shifts. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now