AUD/JPY Advances on China Decision and Yield Advantage

Traders' Opinions

Summary:

AUD/JPY edged higher on Monday as the Australian Dollar found support after the People's Bank of China kept its benchmark lending rates unchanged.

BUY AUDJPY

EXP

TRADING

113.797

Entry Price

115.000

112.900

114.098 +0.390 +0.34%

0.0

Pips

Flat

112.900

Exit Price

113.797

Entry Price

115.000

AUD/JPY rebounded on Monday after two consecutive sessions of losses, with the Australian Dollar strengthening following the People's Bank of China's decision to leave its benchmark lending rates unchanged. The cross traded near 113.60 during the European session as stable Chinese monetary policy provided a modest boost to sentiment toward the Aussie.

The PBoC kept both its one-year Loan Prime Rate at 3.00% and five-year Loan Prime Rate at 3.50%, a widely expected outcome that reassured investors about the outlook for China's economy. Given Australia's close trade ties with China, signs of policy stability from Beijing continue to underpin demand for the Australian Dollar.

AUD/JPY also remains supported by the significant interest rate gap between Australia and Japan. Although markets have scaled back expectations for further Reserve Bank of Australia tightening, investors still see roughly a 70% probability of one final rate hike before year-end, particularly if rising energy costs keep inflation elevated. The RBA is expected to remain patient for now as policymakers assess the impact of previous rate increases on inflation and economic activity.

On the Japanese side, the Yen remains constrained by expectations that the Bank of Japan will leave interest rates unchanged at its upcoming meeting despite raising borrowing costs in June to their highest level in decades. While another rate increase later this year remains possible, officials continue to signal caution.

In my view, the interest rate differential continues to favor AUD/JPY, but upside momentum could be limited by persistent intervention risks. Finance Minister Satsuki Katayama's latest warning that authorities stand ready to take "decisive action" against excessive currency moves serves as a reminder that any rapid appreciation in the cross could attract official scrutiny, keeping traders cautious near higher levels.

Technical Analysis

AUD/JPY remains in a well-established bullish structure, with buyers continuing to defend higher lows along a rising trendline. On the 2-hour chart, the cross has recovered strongly from the early July lows and is now trading comfortably above the ascending trendline that has guided the latest advance. Price has recently bounced from the 113.20–113.30 support zone and is once again challenging the 113.80–114.00 resistance area, suggesting bulls remain in control of the near-term trend.

The rising trendline continues to provide an important layer of dynamic support. As long as prices remain above this structure, the broader bullish outlook remains intact. However, a decisive break below the 113.20 support region, followed by a sustained move beneath the ascending trendline, would weaken the current market structure and expose the next downside support around 112.40, where previous consolidation and buying interest emerged. Such a move would indicate that bullish momentum is fading and could trigger a deeper corrective decline.

On the upside, buyers are focused on securing a clean breakout above the 114.00 psychological barrier. A sustained move through this resistance would confirm the continuation of the prevailing uptrend and shift attention toward the next major supply zone around 114.80–115.00. Clearing this area would reinforce the bullish bias and likely attract fresh momentum buying as traders target new multi-month highs.

Momentum indicators continue to favor the upside despite signs of short-term consolidation. The Relative Strength Index (RSI) is likely holding around the 60 level, remaining in positive territory without entering overbought conditions, suggesting there is still room for further gains. Meanwhile, the Moving Average Convergence Divergence (MACD) remains above the zero line and appears to be regaining positive momentum following the recent pullback, supporting expectations that the broader uptrend is likely to resume after the current consolidation phase.

TRADE RECOMMENDATION

BUY AUD/JPY

ENTRY PRICE: 113.80

STOP LOSS: 112.90

TAKE PROFIT: 115.00

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