The Australian Dollar (AUD) traded lower against both the Japanese Yen (JPY) and the US Dollar (USD) following the release of Australia's May labor market data and amid shifting central bank expectations. The AUD/JPY cross softened to around 111.50 during early European trading hours on Thursday, with the JPY strengthening due to fears of potential intervention by Japanese authorities and a bearish technical outlook for the pair. Japan’s Chief Cabinet Secretary Minoru Kihara stated that appropriate action would be taken against foreign exchange moves if needed, while Bank of Japan (BoJ) board member Naoki Tamura indicated that Japan has achieved its 2% inflation target and suggested the central bank must raise rates near neutral to prevent overshooting inflation. Technical analysis shows AUD/JPY remains under downside pressure, with immediate support at 111.30 and resistance at 112.25 and 113.10, with the pair approaching oversold conditions as the Relative Strength Index (RSI) slips to around 35 [1].
In the broader context, the Japanese Yen continues to hold near its 2024 lows against the US Dollar, supported by resilient US economic data and elevated US yields. MUFG’s Lloyd Chan notes that strong US labor market conditions and persistent PCE inflation reduce the likelihood of near-term US rate cuts, maintaining the Dollar's carry appeal. The US 2-year yield remains above 4% and the 10-year around 4.4%, supporting demand for the Dollar. However, Chan also highlights the elevated risk of policy support for the Yen at current levels, suggesting caution for further upside in USD/JPY [2].
The AUD/USD pair traded marginally lower near 0.6890, pressured by expectations that the Federal Reserve's next policy move could be a rate hike. The US Dollar Index (DXY) hovered around 101.55, close to its yearly high of 101.80. According to the CME FedWatch tool, there is an 82% probability of a Fed rate hike this year. Investors are awaiting the US PCE Price Index data for May for further cues. On the Australian side, the labor market added 40.3K jobs in May, surpassing the 25K estimate, while the unemployment rate fell to 4.4% from 4.5%. Despite these positive figures, the AUD/USD remains in a bearish technical setup, with the RSI at 26.6 indicating oversold conditions. Key support is seen at 0.6833, with resistance at the 20-day EMA of 0.7025 [3].
Commerzbank’s Volkmar Baur commented that the recent Australian labor market and inflation data provided little new momentum for the AUD and reinforced the view that the Reserve Bank of Australia (RBA) is unlikely to hike rates again this year. Baur noted that while the unemployment rate fell slightly, it remains on an upward trend, and no new jobs were created over the past two months, with full-time employment declining. Inflation fell to 4.0% (unrounded 3.96%), but this was attributed to government interventions. Baur expects markets to gradually price in rate cuts for 2027, which is likely to keep the AUD under pressure [4].
Money markets have priced in nearly an 80% chance of an RBA rate hold in August following the employment report [1].
CONCLUSION
Recent Australian labor and inflation data, while showing some improvement, have not shifted market expectations for the RBA, with analysts and money markets anticipating no further rate hikes this year. The AUD remains under pressure against both the JPY and USD, with technical and fundamental factors reinforcing a bearish outlook. Market participants are closely watching upcoming US inflation data and potential Japanese policy actions for further direction.