The AUD/JPY pair rose to 100.30 during Wednesday’s Asian session. This increase followed unexpected strong inflation data from Australia. The Consumer Price Index (CPI) jumped by 1.3% in the third quarter, up from 0.7% in the second quarter, surpassing the market’s expectation of 1.1%.
Australia’s annual CPI inflation increased to 3.2% in Q3, beating the anticipated 3.0%. Additionally, the monthly CPI for August rose to 3.5% YoY, exceeding the predicted 3.1%. This information will likely influence the Reserve Bank of Australia’s interest rate decisions, making a near-term rate cut less probable.
Japan’s Fiscal Strategies
Comments from Japan’s Prime Minister and the U.S. Treasury have calmed concerns about Japan’s fiscal strategies, which has helped stabilize the JPY. The Bank of Japan (BoJ) is expected to maintain its interest rate at 0.5% in tomorrow’s meeting. Market participants are awaiting guidance from Governor Kazuo Ueda after the meeting to understand future policies.
The Australian Dollar (AUD) is affected by various factors, including the Reserve Bank of Australia’s interest rate choices and iron ore prices, which are a key export for Australia. The strength of the Chinese economy, a major trading partner, also impacts the AUD, along with Australia’s trade balance and overall market sentiment.
With today’s unexpected rise in Australian inflation, the case for a stronger AUD is growing. The CPI’s increase to 1.3% in Q3 prompts a reevaluation of the Reserve Bank of Australia’s timeline for potential rate cuts. Futures markets now indicate less than a 15% chance of an RBA rate cut before mid-2026, highlighting a significant policy gap with Japan.
This strength in the AUD is supported by increasing commodity prices and a strong Chinese economy. Recent data shows iron ore prices have stabilized above $120 per tonne. Additionally, last week’s manufacturing PMI from China rose unexpectedly to 51.2, indicating expansion. This environment favors the AUD, especially against currencies from more dovish central banks.
Bank Of Japan’s Rate Decision
Conversely, the Bank of Japan is expected to keep its policy rate unchanged at 0.5% in tomorrow’s meeting. The BoJ has been cautious following its small rate hikes in late 2024 and early 2025, prioritizing stability over aggressive tightening. This expected inaction should keep the interest rate gap between Australia and Japan wide, benefiting the carry trade.
In the coming weeks, traders seem to be positioning for further gains in AUD/JPY, which is already above the critical 100.00 mark. Using call options with strike prices around 101.50 or 102.00 for a December expiry could be a smart way to capture this anticipated move while managing risk. Implied volatility may increase around the BoJ announcement, so timing your entry will be crucial.
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