AUD/JPY Outlook:
The AUD/JPY is likely to increase as it is currently trading well above its recent average and near recent highs. This uptrend is supported by a strong Australian dollar, which Commonwealth Bank expects to reach 112 yen by year’s end.
Key drivers:
• Rate gap: The Reserve Bank of Australia (RBA) is tightening monetary policy while the Bank of Japan (BoJ) remains cautious, enhancing the appeal of the Australian dollar.
• Risk/commodities: Oil prices are significantly above average, boosting commodity-exporting countries like Australia, which positively influences the AUD.
• One macro factor: Sticky inflation in Australia is raising expectations for further interest rate hikes from the RBA, potentially strengthening the AUD further.
Range:
Expect the AUD/JPY to test the upper ends of its recent range, supported by bullish Australian economic data and a favorable global outlook.
What could change it:
• Upside risk: A stronger-than-anticipated inflation report from Australia could increase the likelihood of additional RBA rate hikes.
• Downside risk: Renewed concerns over geopolitical issues or US tariffs may dampen market risk appetite, placing pressure on the AUD.
