AUD/JPY traded firmer near 114.35 in early European dealings on Tuesday, maintaining a constructive tone above the 100-day EMA and supported by bullish RSI momentum. Market focus remained on geopolitical developments after mixed messaging from US President Donald Trump, who said he expects an agreement to reopen the Strait of Hormuz and extend the ceasefire with Iran “over the next week”, following Monday’s remark that he did not care if talks were over.
Japanese officials signalled readiness to respond in the currency market if needed, a stance that could temper further JPY weakness, while Bank of Japan Governor Kazuo Ueda is due to speak on Wednesday, with attention on whether a rate increase could follow the next week. On the chart, spot stayed above the 100-day SMA and the Bollinger middle band, and the RSI read 57.46. Resistance is seen at 114.75, then support at 113.85; further downside markers sit at 112.98 and 111.30.
Central Bank Divergence and Market Drivers
We see the AUD/JPY cross holding firm above the 114.00 mark, supported by strong commodity prices that have benefited the Australian dollar. However, recent Australian inflation data showing a dip to 3.1% suggests the Reserve Bank of Australia may be nearing the end of its tightening cycle. The pair’s constructive outlook remains as long as it stays above its key 100-day moving average.
The Bank of Japan, on the other hand, is providing hints of a potential 15 basis point rate increase at its meeting next week. This follows a slow but steady policy normalization trend throughout the past year. These actions, along with increased verbal warnings from the Ministry of Finance, should limit significant yen weakness from here.
Volatility, Options Strategies, and Key Technical Levels
This divergence in central bank outlook is increasing implied volatility, which makes options strategies more appealing for managing risk. We are considering bull call spreads to capitalize on further upside while defining our maximum loss. For example, buying a July 114.50 call and simultaneously selling a July 115.50 call offers a defined-risk way to trade a move higher.
We must remain alert to the threat of direct currency intervention by Japanese authorities, similar to the actions taken in 2022 and 2024 when the yen weakened rapidly. Any sharp spike towards the 116.00 level could trigger a swift reversal. To protect against this, holding some out-of-the-money puts with a strike below 113.00 can act as a cheap insurance policy.
The immediate resistance near 114.75 is the first major hurdle for the pair. A decisive break above this level would signal further strength and could be a trigger to add to bullish positions. Conversely, a failure to break out could see the price pull back to test initial support around the 113.85 level.
