AUD/JPY Price Forecast: Declines to near 114.50, but maintains bullish tone above 100-day SMA

The AUD/JPY cross trades in negative territory around 114.50 during the early European session on Monday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) as Japans annual core Consumer Price Index (CPI) inflation in Tokyo rose for a third consecutive month in August, reinforcing expectations that the Bank of Japan (BOJ) could raise interest rates as early as September.

Hotter inflation data came after BoJ Deputy Governor Ryozo Himino delivered hawkish remarks and highlighted growing inflation risks. Most market participants currently expect the Japanese central bank to raise its policy rate to 1.25% at its upcoming policy meeting.

On the other hand, upbeat Chinas Manufacturing Purchasing Managers' Index (PMI) data could provide some support to the China-proxy Aussie as China is a major trading partner to Australia.

Data released by the National Bureau of Statistics (NBS) on Monday showed that China‘s Manufacturing PMI climbed to 49.8 in August from 49.2 in July. This figure came in stronger than the 49.7 expected. The NBS Non-Manufacturing PMI steadied at 49.0 in August, compared to July’s 49.0 figure.

Analysts at Societe Generale argue that the latest inflation dynamics, including the mix of softer non-fresh food prices and firmer services costs, “continue to support the BoJs hawkish path,” reinforcing expectations that the central bank will maintain its tightening bias despite temporary downward pressure from renewed energy subsidies.

In the daily chart, AUD/JPY retains a bullish near-term bias as spot holds above the 100-day simple moving average (SMA) and the Bollinger middle band. Price action is pressing into the upper half of the Bollinger envelope, with the upper band acting as immediate overhead supply, while the 14-day Relative Strength Index at 63.27 stays in positive territory, hinting at sustained buying pressure rather than outright overbought conditions.

On the downside, initial demand is seen at the August 26 low of 113.66. The next contention level is located at the 100-day SMA at 113.25, followed by the the Bollinger middle band at 113.00.

On the topside, any follow-though buying above the August 26 high of 114.96 would open the door for the Bollinger upper band at 115.20. The next hurdle to watch is the 116.00 psychological level.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada‘s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canadas biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canadas case is the Canadian Dollar.

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.