AUD/JPY extended gains for a third session, trading around 114.60 in Asian hours, after mixed releases from China, Australia and Japan. In China, RatingDog’s Manufacturing PMI eased to 51.8 in May from 52.2, yet it still topped the 51.4 consensus. Japan’s final S&P Global Manufacturing PMI was confirmed at 54.5 for May 2026, matching the flash estimate, and although it declined from April’s 55.1 peak—its highest since January 2022—it remained in expansion territory.
Australian data showed a firmer, but cooling, domestic pulse. ANZ–Indeed Job Ads rose 1.8% month-on-month in May after a 0.6% fall in April, while the TD-MI Inflation Gauge slipped 0.3% month-on-month, reversing a 0.6% increase and posting its first decline since February. In Japan, corporate capital spending was flat in Q1, compared with 6.5% year-on-year growth in Q4 2025, and fell short of expectations. Market positioning remained cautious on the yen, with intervention expectations acting as a constraint on the cross’s upside.
Mixed Data Signals and Future Direction
We see the AUD/JPY cross trading near 114.60, but the underlying data presents a complex picture for further gains. The resilience in China’s manufacturing provides some support, yet the slowdown tempers our optimism for Australia’s largest trading partner. We believe this tension warrants a cautious approach in the immediate term.
The easing Australian inflation is a significant development for us. With the TD-MI gauge showing a decline, futures markets are now pricing in less than a 15% chance of a Reserve Bank of Australia rate hike by September, a sharp drop from last month. This shift fundamentally weakens the case for a stronger Australian Dollar.
The primary risk capping gains remains potential intervention from Japanese authorities to support the Yen. We’ve seen Japanese officials increase their verbal warnings recently, reminiscent of the rhetoric used before the interventions of late 2024 when the cross pushed past 110. Any move towards the 115-116 level will likely be met with strong resistance and the real threat of official selling.
Risk Management and Market Positioning
Given this backdrop, we are looking at strategies that benefit from a potential downturn or a cap on the upside. We view buying AUD/JPY put options with a one-to-two-month expiry as a prudent way to hedge or speculate on a correction. Implied volatility on these options has already risen to 11.5%, up from 9.8% a month ago, signaling that the market is bracing for a sharp move.
We are also monitoring the impact of China’s economic slowdown on commodity prices, which are crucial for the AUD. Recent data on Chinese industrial profits showed a contraction of 1.2% year-over-year, reinforcing the view that demand for Australian iron ore may soften. This could create another headwind for the currency pair in the coming weeks.
