Australian Inflation Data Pressures The Aussie
The Australian Dollar also faced pressure after softer inflation data. Australia’s annual CPI eased to 3.7% year on year in February from 3.8% in January, while trimmed mean CPI was 3.3% versus a 3.4% forecast and matched January’s revised result. AUD/JPY was also influenced by a firmer Japanese Yen on expectations of a near-term Bank of Japan rate rise. The BoJ kept its policy rate unchanged in March, and Governor Kazuo Ueda indicated a move in April remains possible. Japanese government bond yields rose on Thursday, with the 10-year at 2.27% after a two-day fall. Two-year yields reached three-decade highs and five-year yields hit record levels. We are seeing a familiar setup in AUD/JPY, though the cross is now trading significantly higher around 115.50. This is a stark contrast to the sideways grind near 111.00 we observed at this time in 2025. The core tension between a hawkish Reserve Bank of Australia and a cautious Bank of Japan continues to be the main driver.Policy Divergence Supports Further Upside
Looking back, RBA Assistant Governor Kent’s warnings in early 2025 about inflation proved to be accurate. Despite the softer CPI data seen in February 2025, inflation has accelerated, with the latest Q1 2026 figures showing an annual rate of 4.1%. This persistence in price pressures suggests the RBA may deliver another rate hike in the second quarter. On the other side, the Bank of Japan did follow through on the market’s expectations, delivering its historic rate hike in April 2025. However, officials have since remained on the sidelines, signaling a prolonged pause to assess the impact on the economy. We’ve seen 10-year Japanese government bond yields retreat to 2.15%, down from the peak of 2.27% we saw in March of last year. This growing policy divergence strongly favors further upside in the AUD/JPY. We believe traders should position for a continued move higher by purchasing call options. Buying June 2026 calls with a strike price around 117.00 appears to be a prudent strategy to capture the next leg up. Furthermore, the Australian Dollar now has a tailwind that was less prominent last year. A resurgence in demand has pushed iron ore prices back above $130 a tonne, a level not consistently held in 2025. This fundamental support from commodities reinforces the bullish case for the AUD against a JPY backed by a central bank on hold. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
