The AUD/JPY currency pair weakened to around 113.50 during the early European session on Friday, as the Australian Dollar (AUD) lost ground against the Japanese Yen (JPY) following a surprise increase in Australia's unemployment rate [1]. According to the Australian Bureau of Statistics, the unemployment rate in Australia rose to 4.5% in April from 4.3% in March, marking the highest level in approximately four and a half years [1]. This development has led markets to significantly reduce expectations for further interest rate hikes by the Reserve Bank of Australia (RBA), with the probability of a rate hike at the next meeting dropping to just 3%, down from 13% prior to the employment report, based on financial market pricing from Westpac [1].
On the Japanese side, softer inflation data was reported, with Japan’s National Consumer Price Index (CPI) rising by 1.4% year-on-year in April, compared to 1.5% in March, and the core CPI also climbing by 1.4% year-on-year, the slowest annual pace in four years [1]. This could potentially weigh on the JPY and provide some support for the AUD/JPY cross [1].
From a technical perspective, AUD/JPY remains above the 100-day Simple Moving Average (SMA) at 110.70, indicating that the broader uptrend is still intact despite the recent pullback [1]. The pair is trading just below the Bollinger Bands’ 20-day SMA, suggesting that upward momentum has slowed but not reversed, while the Relative Strength Index (RSI) near 51 points to neutral-to-mildly positive momentum [1]. Immediate resistance is seen at the Bollinger middle band around 113.65, with further resistance at the May 14 high of 114.66 and the upper Bollinger band near 114.83. On the downside, support is found at the lower Bollinger band around 112.50 and the April 13 low of 111.66, with key trend support at the 100-day SMA near 110.70 [1].
The market implications of these developments suggest that the AUD may remain under pressure in the near term due to diminished expectations for RBA tightening, while the JPY could also face headwinds from softer inflation data [1].
CONCLUSION
The AUD/JPY pair has weakened following a rise in Australia's unemployment rate and a sharp drop in RBA rate hike expectations, though the broader uptrend remains intact. Softer Japanese inflation data may limit JPY strength, keeping the cross supported above key technical levels. Market sentiment appears cautious, with both currencies facing headwinds from domestic economic data.