AUD/JPY dipped to around 103.50 in early trading on Thursday due to mixed employment data from Australia. The Australian Bureau of Statistics revealed that the unemployment rate for November is at 4.3%, which is better than the expected 4.4%. However, employment decreased by 21,300 jobs, compared to an increase of 41,100 jobs in October. Even so, a strong stance from the Reserve Bank of Australia (RBA) may support the Australian Dollar. The central bank hinted at possible interest rate hikes if inflation remains high, with markets predicting a rate increase by 2026.

Impact Of Japanese Fiscal Measures

There are concerns among traders regarding Japan’s fiscal policies under Prime Minister Sanae Takaichi’s growth-focused agenda. His plans for fiscal stimulus and increased spending could negatively affect the Japanese Yen, benefiting the Australian Dollar. Several key factors influence the AUD, including interest rates, iron ore prices, the economies of Australia and China, and trade balance. Steady demand from China for Australian exports like iron ore helps boost the AUD, while changes in these areas can lead to currency fluctuations. The Reserve Bank of Australia also affects the AUD by adjusting interest rates. A positive trade balance strengthens the AUD, while a negative balance weakens it. The AUD/JPY has decreased to the 103.50 level following a surprising drop in employment. This marks a notable slowdown from the strong job market we experienced in late 2023, when job growth was consistently high. Nevertheless, the stable unemployment rate at 4.3% indicates some resilience, preventing a bigger sell-off for the time being.

Reserve Bank Of Australia’s Role

The RBA’s assertive stance is the main driver keeping the AUD from falling further. Governor Bullock has indicated no rate cuts are expected, and there’s even a chance for a hike from the current 4.35% cash rate by 2026. This creates a substantial interest rate advantage over Japan, which is a key reason we anticipate buying interest in AUD/JPY dips in the coming weeks. We should also keep an eye on external factors, especially China’s economy, which has seen uneven recovery over the past two years. This has led to volatile iron ore prices, swinging between $95 and $130 per tonne. Currently, prices are around $115, so any negative news from China could pressure the Australian dollar. Given these mixed signals, we expect a period of choppy trading without a clear direction. For derivative traders, this could mean that strategies that profit from volatility, such as buying straddles or strangles, might work well. Alternatively, selling out-of-the-money options to collect premiums could also be effective if we believe the AUD/JPY will remain between key support and resistance levels. Create your live VT Markets account and start trading now.

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