The AUD/JPY cross declined during Asian trading hours on Tuesday, settling near 96.55, as the Australian Dollar (AUD) came under pressure following the Reserve Bank of Australia’s (RBA) latest policy decision. Meanwhile, the Japanese Yen (JPY) faces mixed signals from the Bank of Japan’s (BoJ) rate outlook and heightened geopolitical tensions in the Middle East.
RBA Maintains Rates, Signals Dovish Outlook
The RBA kept its Official Cash Rate (OCR) unchanged at 4.35% during its December meeting, as widely anticipated, marking the ninth consecutive hold. The central bank’s statement struck a slightly dovish tone, with policymakers expressing cautious optimism about easing inflationary pressures but acknowledging persistent risks and uncertainties.
RBA Governor Michele Bullock emphasized that the board’s decisions would remain data-dependent, and future adjustments would hinge on evolving economic conditions. This tempered tone triggered selling pressure on the Aussie Dollar, contributing to AUD/JPY’s decline.
BoJ Policy Uncertainty Limits Yen Momentum
The Japanese Yen struggles for clarity as traders weigh the prospects of another rate hike by the Bank of Japan (BoJ). Governor Kazuo Ueda recently reiterated that the BoJ is open to tightening monetary policy further if inflation expectations remain anchored around its 2% target. However, market confidence in a near-term hike has diminished, with traders pricing in only a 28% likelihood of a December rate hike, a significant drop from 66% last month.
Geopolitical Tensions Offer Safe-Haven Support for JPY
Geopolitical risks stemming from the Middle East provide some tailwind for the safe-haven Yen. On Monday, rebel forces in Syria toppled President Bashar al-Assad’s regime, transferring power to Mohammed Al Bashir to establish a transitional administration. This development raises concerns over potential regional conflicts, which could bolster demand for safe-haven assets like the JPY.
Investors are closely monitoring developments in the Middle East, as escalating tensions could heighten risk aversion, indirectly benefiting the Yen.
Technical Outlook: AUD/JPY Trends Lower
Support Levels:
Immediate support for the AUD/JPY pair lies at 96.30, followed by the 96.00 psychological level. A break below these levels could expose the November low near 95.50.
Resistance Levels:
The first upside hurdle is seen at 96.85, aligned with the 20-day Exponential Moving Average (EMA). A sustained move above this level could target 97.50.
The Relative Strength Index (RSI) is trending below 50, signaling bearish momentum. The pair also remains confined within a descending channel, reinforcing the bearish outlook.
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