The Australian Dollar (AUD) and Japanese Yen (JPY) cross demonstrated a strong positive momentum during the Asian trading session on Friday, driven by a variety of economic factors and monetary policy shifts. Building on the previous day's rebound from the 95.35-95.30 range, the AUD/JPY pair continues its upward trajectory. The recent cautious rate cut by the Reserve Bank of Australia (RBA) earlier this week has offered additional support to the Australian currency, further boosting the AUD/JPY cross.
The RBA's decision to lower interest rates played a significant role in underpinning the Aussie, offering a favorable outlook for the AUD/JPY pair. Simultaneously, anticipation grows that the Federal Reserve might follow in the footsteps of the United Kingdom by cutting rates more than initially expected, adding another layer of complexity to the currency dynamics. These developments have set the stage for the AUD/JPY cross to potentially resume its upward recovery from the lowest level recorded since September 2024. The pair now aims to reclaim the 98.00 mark as it strives to maintain its positive momentum.
In recent trading activity, the intraday momentum of the AUD/JPY cross has encountered resistance near the top end of a descending channel that has persisted for a week. However, continued buying interest could propel the pair toward the 200-period Simple Moving Average (SMA) on the 4-hour chart, situated around the 97.00 region. This technical indicator serves as a critical marker for traders assessing potential price movements.
Meanwhile, on Japan's economic front, significant developments have influenced the currency landscape. The Bank of Japan (BoJ) initiated an ultra-loose monetary policy in 2013 with the aim of stimulating economic growth and driving inflation higher. This policy stance contributed to a widening interest rate differential with other currencies, which exerted downward pressure on the Yen's value. The BoJ's recent decision to lift interest rates in March 2024 marks a departure from this ultra-loose policy stance, signaling a shift towards a more balanced approach.
Japan's core Consumer Price Index (CPI) reached a 19-month high in January, reinforcing expectations that the BoJ will continue to raise interest rates. This development has led to heavy selling of the Yen on Friday, providing additional traction for the AUD/JPY cross. However, expectations of further BoJ rate hikes, supported by Japan's robust National CPI figures, are helping to limit Yen losses and thus capping gains for the currency pair.
Market analysts are closely monitoring the potential implications of these economic indicators and monetary policy decisions on the AUD/JPY cross. Should there be a convincing break below the 96.45-96.50 range, it could trigger fresh bearish sentiment among traders, making the pair vulnerable to retesting its multi-month lows.