AUD/JPY traded near 112.20 in early European dealings on Friday. The Australian Dollar rose against the Japanese Yen after the Reserve Bank of Australia lifted its Official Cash Rate by 25 basis points to 4.10% at its March meeting, following a 25 bps rise in February. The Reserve Bank of Australia said prices were still too high and referred to risks from higher energy costs linked to the Middle East conflict. The conflict involving the US, Israel and Iran entered its third week, and comments from Iran’s Foreign Minister Abbas Araghchi included a pledge of “ZERO restraint” if energy infrastructure was hit again.

Daily Chart Signals

On the daily chart, the pair stayed above the rising 100-day exponential moving average near 106.60. The Relative Strength Index was 57.00, after previously moving above 70. The Bollinger Band middle line near 111.58 was described as a pivot level. Support was listed at 111.58, then 111.00, with lower band support near 109.52. Resistance was placed near the upper Bollinger Band peak at 113.65, followed by 114.00. The technical section noted it was produced with the help of an AI tool. Looking back a year, we saw the AUD/JPY cross trading strongly around 112.20 in March 2025, driven by a hawkish Reserve Bank of Australia. The RBA was raising rates to combat inflation sparked by energy costs from the Middle East conflict at the time. Today, the situation has evolved, with the RBA’s hiking cycle having peaked. Currently, the Australian cash rate is on hold at 4.35%, and while inflation remains a concern at 3.8% as of the last quarterly report, the market is now pricing in potential rate cuts later this year. This shift away from the aggressive tightening we saw in 2025 suggests limited upside for the Australian dollar on interest rate policy alone. Derivative traders might consider buying put options to hedge against or speculate on a weakening AUD if upcoming data confirms a cooling economy.

Yen Policy Shift

The bigger story is the Japanese Yen, which has a much stronger footing now than it did in early 2025. The Bank of Japan finally abandoned its negative interest rate policy late last year, and recent strong wage growth figures are fueling speculation of further policy normalization. This fundamental shift reduces the appeal of the AUD/JPY carry trade that was so profitable before. The policy divergence that previously pushed the pair higher is now clearly narrowing. The high volatility we saw in 2025 due to geopolitical events has subsided, but the changing central bank dynamics introduce a new source of potential price swings. This suggests that strategies profiting from a downward trend, such as bear put spreads, could be appropriate for the coming weeks. From a technical standpoint, the levels from last year are now distant memories, with the pair trading well below the 111.58 support level mentioned back then. We are currently seeing significant resistance near the 100-day moving average around 109.20. As long as the pair fails to break convincingly above this level, it favors establishing bearish positions or selling call spreads on any rallies. Create your live VT Markets account and start trading now.

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