The Australian dollar edged lower against the Japanese yen on Wednesday after softer-than-expected inflation data from Australia raised questions about the Reserve Bank’s next policy move. However, technical analysts note that the broader bullish trend for the AUD/JPY pair remains intact, with key support levels holding firm.

Softer CPI Data Triggers Modest Decline

Australia’s monthly Consumer Price Index (CPI) for December came in at 2.5% year-on-year, slightly below the market consensus of 2.6%. The miss, though marginal, was enough to trigger a short-term sell-off in the Australian dollar, pushing AUD/JPY from the 97.80 area to a session low near 97.30. The data suggests that inflationary pressures are cooling faster than anticipated, which could give the Reserve Bank of Australia (RBA) room to consider rate cuts earlier than previously expected.

Market participants are now pricing in a roughly 60% probability of a 25-basis-point rate cut at the RBA’s February meeting, up from 45% before the CPI release. Lower interest rate expectations typically weigh on a currency, and the Aussie’s reaction was consistent with that dynamic.

Technical Outlook: Bullish Structure Remains

Despite the intraday dip, the AUD/JPY chart reveals a resilient bullish structure. The pair is trading above its 50-day and 200-day moving averages, a classic sign of an uptrend. The 97.00 level has emerged as a strong support zone, reinforced by the 50-day SMA currently near 96.85. A break below this level would be needed to signal a potential trend reversal.

On the upside, resistance is seen at the recent high of 98.50, followed by the psychological 99.00 level. The Relative Strength Index (RSI) has pulled back from overbought territory to around 55, suggesting room for further upside without immediate exhaustion.

Key Levels to Watch

Support: 97.00 (50-day SMA), 96.50 (psychological level)
Resistance: 98.50 (recent high), 99.00 (round number)
Trend: Bullish above 97.00; neutral-to-bearish below 96.50

Broader Context: Yen Weakness and Risk Appetite

The broader bullish trend in AUD/JPY is also supported by persistent yen weakness. The Bank of Japan (BOJ) has maintained its ultra-loose monetary policy stance, keeping Japanese government bond yields low. In contrast, Australia’s relatively higher yields continue to attract carry trade flows, which benefits the Aussie against the yen.

Furthermore, global risk appetite remains reasonably solid, supported by easing inflation in major economies and hopes of a soft landing in the U.S. economy. The Australian dollar, often viewed as a proxy for risk sentiment, tends to benefit in such an environment.

Conclusion

Wednesday’s softer Australian CPI data triggered a modest pullback in AUD/JPY, but the broader technical and fundamental picture still favors the bulls. The 97.00 support level will be critical in the coming sessions. If it holds, the path of least resistance remains higher toward 98.50 and beyond. However, a sustained break below 96.50 would suggest a deeper correction. Traders should monitor upcoming Australian employment data and any BOJ policy signals for further direction.

FAQs

Q1: What caused the AUD/JPY to decline recently?
A: The Australian dollar weakened after softer-than-expected Australian CPI data for December raised expectations of a potential RBA rate cut, reducing the currency’s yield advantage.

Q2: Is the AUD/JPY bullish trend still intact?
A: Yes, the broader bullish trend remains intact as the pair is trading above key moving averages and the 97.00 support level has held. A break below 96.50 would be needed to signal a trend reversal.

Q3: What are the key support and resistance levels for AUD/JPY?
A: Key support is at 97.00 (50-day SMA) and 96.50. Key resistance is at 98.50 (recent high) and 99.00 (psychological level).

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