AUD/JPY rose about 0.4% on Wednesday. The move was driven by a stronger Australian Dollar after hawkish Reserve Bank of Australia (RBA) minutes. The minutes said inflation risks have increased, and the Board is ready to tighten policy again if needed. In Japan, former BoJ board member Adachi said an April rate rise is likely once enough data is available. Japan’s Q4 GDP came in at 0.1% quarter on quarter, below expectations, but markets still kept pricing for an April move.

Key Data And Near Term Catalysts

Key releases on Thursday include Australia’s January jobs report and Japan’s January national CPI. The previous core CPI reading (excluding fresh food) was 2.1% year on year. The pair traded near 109.00. It held above the rising 50-day EMA near 106.50 and the 200-day EMA at 100.81. The uptrend from the late November low near 100.35 is still intact. The Stochastic Oscillator was near the midline, pointing to neutral momentum. Resistance sits at 110.790, with 112.00 as the next level. Support is near 108.00 and the 50-day EMA at 106.490. The Australian Dollar is shaped by RBA policy, Chinese demand, inflation, growth, and the trade balance. Iron ore is Australia’s biggest export, worth $118 billion a year in 2021. The policy gap between the RBA and the Bank of Japan (BoJ) remains the main driver of AUD/JPY. We see this as a continuation of the pattern seen through 2025, when the RBA stayed hawkish. With the RBA cash rate at 4.35% and the BoJ rate at just 0.10%, the rate gap gives the pair a strong tailwind.

Strategy Considerations And Positioning

In Australia, recent data shows inflation is still sticky. The latest quarterly CPI was 3.8%, above the RBA’s target band. Iron ore prices have eased to around $125 per tonne after mixed signals from China. China’s manufacturing PMI recently slipped to 49.5. Even so, the higher yield on the AUD continues to provide support. This is different from a year ago, when we were still waiting for these policy moves. In Japan, the BoJ remains cautious. It only ended negative rates in mid-2024 and has shown limited interest in fast tightening. Japan’s national core CPI has cooled to 2.5%, which reduces the pressure to move quickly. This keeps the yen soft and makes the AUD/JPY carry trade appealing for traders willing to fund positions in the low-yielding yen. In this backdrop, we think buying AUD/JPY call options is a sensible strategy for the next few weeks. It offers exposure to a potential move toward 116.00 while capping risk to the premium paid. It also fits the current uptrend without taking full risk from sudden shifts in market sentiment. For traders focused on income, selling out-of-the-money puts may also be an option, especially while the pair holds above the 50-day moving average, now near 112.50. This strategy earns premium by betting that the wide rate gap will help limit downside on smaller pullbacks. Traders should still watch key jobs and inflation data from both countries. Create your live VT Markets account and start trading now.

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