AUD/JPY rose as risk appetite improved after a two-week pause in the Middle East conflict between the US and Iran. Israel carried out strikes on Beirut and said Lebanon is not part of the deal, and AUD/JPY traded at 111.79, up 0.39%.
Price action suggests consolidation after an uptrend, with a quasi-shooting star forming and the close set to fall below the candle’s halfway point. This points to weakening upward momentum.
Technical Momentum Signals
The Relative Strength Index (RSI) remains bullish but is sloping down towards the 50 neutral level. A break below 50 would indicate growing selling pressure.
On the upside, a move above the 8 April daily high at 112.38 would target 113.00, with further resistance at 113.96, the 11 March peak. On the downside, a drop to 111.50 could lead to the 20-day Simple Moving Average (SMA) at 111.02 and the 111.00 level.
If losses extend, the next support is the 50-day SMA at 110.47. That sits ahead of the 110.00 level.
Looking back at the analysis from April 2025, we can see the market was optimistic about a temporary ceasefire, which pushed AUD/JPY higher. However, the technical signals, like the fading RSI and potential shooting star pattern, were already flashing warning signs. Those indicators correctly suggested that the buying momentum was fragile and susceptible to a reversal.
That cautious technical view proved correct as the geopolitical optimism was short-lived, and the pair failed to sustain a break above the 112.38 level. Throughout mid-2025, AUD/JPY fell back towards the support levels mentioned around 111.00 and eventually 110.47. This historical price action confirms that even during periods of positive news flow, weakening technical momentum should not be ignored.
Macro Backdrop And Trade Ideas
Today, the Australian Dollar faces pressure from slowing global growth, with key commodity prices like iron ore recently dropping below $105 per tonne after trading over $130 earlier in the year. Although the Reserve Bank of Australia is holding its cash rate at a firm 4.35% to combat persistent inflation, weakening external demand is capping the Aussie’s upside potential. This situation makes the currency vulnerable, especially against a strengthening Yen.
On the other side of the trade, the Bank of Japan has fundamentally altered the landscape by ending its negative interest rate policy late last year. With the BoJ policy rate now at 0.10% and inflation in Japan holding above 2%, the case for a structurally stronger Yen is gaining traction. This narrowing of the interest rate difference between Australia and Japan removes a key pillar of support that drove AUD/JPY higher for years.
Therefore, derivative traders should consider positioning for further downside in the AUD/JPY pair over the coming weeks. Buying put options with strike prices below 110.00 would provide a clear, risk-defined way to profit from a potential decline toward the 108.50 area. For those less bearish, selling out-of-the-money call options or establishing bear call spreads above 112.50 could be an effective strategy to capitalize on the view that upside is now severely limited.
