The Australian Dollar is falling against the Japanese Yen, with AUD/JPY currently around 96.70. A Harami candlestick pattern has appeared, indicating market uncertainty as the pair approaches a key resistance point. AUD/JPY recently passed the 61.8% Fibonacci retracement level of 96.15 from an earlier drop. The pair is slightly above the 200-day Simple Moving Average (SMA) at 95.80, suggesting there is potential support.

Long Term Trend

The long-term trend remains positive, with the 50-day and 100-day SMAs showing upward movement. The Relative Strength Index (RSI) is below 70, which hints at a possible pullback since it nears overbought conditions. If the price breaks above 97.00, it could rise towards the 78.6% Fibonacci retracement at 98.90. However, if selling pressure increases, support levels are at 96.15 and 94.10, and further declines could happen if these levels are broken. The Australian Dollar is affected by several factors: the Reserve Bank of Australia’s interest rates, iron ore prices, and the economic health of China. These elements, along with Australia’s Trade Balance, influence the currency’s value. The strength of China’s economy directly impacts demand for the Australian Dollar.

Australian Dollar Strength

Considering the uncertainty shown by the Harami pattern as the pair tests key resistance, we suggest a careful approach. While the long-term upward trend guides us, the short-term outlook is muddled by mixed signals, which derivatives can help navigate. The case for Australian Dollar strength is strengthening. Australia’s latest quarterly CPI increased unexpectedly to 3.6%, leading to speculation that the Reserve Bank of Australia might be the last major central bank to consider rate cuts. Recent minutes from their meeting showed that a rate hike was discussed actively. This hawkish stance strengthens the upward momentum indicated by the 50-day and 100-day SMAs. Historically, during periods of RBA tightening and robust global growth, like the significant rallies in 2021 and 2022, pullbacks in this pair have often provided good buying opportunities. However, we need to balance this positivity with the challenges faced by its largest trading partner. China’s recent Caixin Manufacturing PMI reading of 51.7 marks a seventh consecutive month of growth, which is a positive sign for Australian exports. Yet, this is countered by ongoing weakness in China’s property sector and sluggish consumer spending. This contrast is reflected in iron ore prices, which, after a significant rebound, are currently around $117 per tonne, well below previous highs. This economic tug-of-war in China directly contributes to the indecision shown in the candlestick pattern and explains the RSI’s failure to move firmly into overbought territory. As a result, we see an opportunity for a bull call spread. By buying a call option with a strike just above the market, say at 97.25, and selling a higher strike call close to the 78.6% Fibonacci level around 98.75, traders can position for a gradual rise. This strategy lowers upfront costs and defines risk, a smart move given the potential for a quick rebound from resistance. For those who think the conflicting data from China will lead to consolidation, selling an out-of-the-money strangle—by placing a put option below the 94.10 support and a call option above the 97.00 resistance—could be a good way to capitalize on the expected market fluctuations. Create your live VT Markets account and start trading now.

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