Middle East Risks And Safe Haven Flows
Iran’s central military command warned on Monday of more “devastating and widespread” retaliation if civilian targets are hit. This followed a threat from US President Donald Trump to destroy Iran’s power plants and bridges if Tehran did not make a deal to fully reopen the Strait of Hormuz. On the daily chart, price stayed above the rising 100-day EMA near 107.35, keeping the broader uptrend despite a pullback. The RSI eased towards the midline, pointing to possible near-term consolidation. If price rises, the first barrier is the Bollinger middle band at 111.25, then 112.61 and 113.65. On dips, levels to watch are 110.00, 108.75, and the 100-day EMA near 107.35. Looking back at 2025, we saw a mildly bullish bias for AUD/JPY, with the cross trading above the 110.00 level. This was largely driven by expectations that the Reserve Bank of Australia would continue hiking interest rates. The main risk to that view was geopolitical tension, which could have boosted the safe-haven yen.Current Macro Backdrop And Key Levels
As of April 6, 2026, the situation has shifted considerably, and that bullish case has weakened. We are now seeing the AUD/JPY trade closer to 104.50, as the policy divergence between the central banks has reversed course. Australia’s Q1 2026 inflation data came in at 3.1%, continuing its downward trend and leading the RBA to hold its cash rate steady for a fifth consecutive meeting. Conversely, the Bank of Japan has continued its path of policy normalization, executing a second small rate hike in March 2026. This has narrowed the interest rate differential that previously favored the Australian dollar. The yield spread between Australian and Japanese 10-year bonds now sits at 3.6%, down from over 4.2% in mid-2025. For derivative traders, this environment suggests positioning for further downside or range-bound trading. Buying AUD/JPY put options could be a prudent strategy to capitalize on potential drops toward the 103.00 support level. Implied volatility has recently increased to 11.2%, making strategies like put spreads attractive to manage premium costs while maintaining a bearish outlook. We should watch key levels carefully in the coming weeks. Resistance now sits near the 105.50 mark, which was a support level last year. A key risk to a bearish stance would be a sudden surge in commodity prices, particularly iron ore, which could provide unexpected strength to the AUD. Create your live VT Markets account and start trading now.
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