The AUD/JPY pair fell to around 103.15 during the early European session on Monday. The Australian dollar (AUD) weakens against the Japanese yen (JPY) as China’s economic slowdown deepens in November, with retail sales and industrial production growth below expectations. All eyes will be on the Bank of Japan’s interest rate decision on Friday. The Bank of Japan is widely expected to announce a rate hike to 0.75% at its monetary policy meeting in December.
China’s retail sales rose 1.3% year-on-year in November, compared to 2.9% in October, the National Bureau of Statistics said Monday. This reading was worse than the estimate of 2.9%. China’s industrial production rose 4.8% year-on-year in November versus 4.9% previously, below market expectations of 5.0%. Weak Chinese consumption and factory activity could undermine the Australian dollar, as China is Australia’s largest trading partner.
Technical analysis:
On the daily chart, the AUD/JPY pair is trading at 103.15. The pair is holding well above the bullish 100-day moving average at 99.38, maintaining a bullish bias in the medium term. The steady rise of the EMA confirms the continued demand. The price is above the mid-Bollinger band at 102.42 and below the upper band at 104.42, indicating sustained upward pressure without over-extension. The RSI remains at 60.04 above the neutral 50 mark after pulling back from recent highs, suggesting that momentum is calming but remains positive.
Continuing the uptrend will need a decisive move through the upper Bollinger band at 104.42 to extend the advance. On pullbacks, initial support is in line with the Bollinger Band midline at 102.42, while the 100-day EMA at 99.38 would serve as a deeper floor. The Bollinger Band indicator is sloping upward, maintaining a directional slope to the upside. The RSI remaining near 60 would favor buying dips; A slide towards 50 could bring the price back towards the midline.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Frequently asked questions about the Australian dollar
One of the most important factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country, another major driver is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is one factor, in addition to Australia’s inflation, its growth rate and its trade balance. Market sentiment – whether investors are snapping up riskier assets (risk on) or looking for safe havens (risk off) – is also a factor, with risk appetite positive for the Australian dollar.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This affects the level of interest rates in the economy as a whole. The RBA’s main objective is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the Australian dollar, and relatively low interest rates. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian Dollar (AUD). When the Chinese economy is performing well, it buys more raw materials, goods and services from Australia, which raises demand for the Australian dollar, raising its value. The opposite is the case when the Chinese economy does not grow as quickly as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its crosses.
Iron ore is Australia’s largest export, representing $118 billion annually according to 2021 data, and China is its main destination. Therefore, the price of iron ore could be a driver of the Australian dollar. In general, if the price of iron ore rises, the Australian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of iron ore falls. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which is also positive for the Australian dollar.
The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can affect the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value from the excess demand generated by foreign buyers seeking to buy its exports in exchange for what it spends to buy imports. Therefore, a positive net trade balance strengthens the Australian dollar, with the opposite effect if the trade balance is negative.
