AUD/JPY Rally Accelerates to 114.30 Amid Hawkish RBA Bets

The Australian Dollar (AUD) strengthened against the Japanese Yen (JPY), reaching near 114.30, as market participants increased their expectations of a Reserve Bank of Australia (RBA) interest rate hike following the release of hotter-than-expected inflation data for July.

According to Deutsche Bank analysts, the Australian Consumer Price Index (CPI) rose by 3.5% year-over-year in July, surpassing market consensus of 3.3%. This upside surprise has led to a sharp increase in RBA rate hike expectations from 10% to 32%, with traders now pricing in a 25bps September hike.

The RBA Minutes of the July policy meeting also showed that several board members see an interest rate hike 'quite possible' if inflation risks materialize. Although the Japanese Yen (JPY) is trading lower against its peers, it remains strong due to expectations that the Bank of Japan (BoJ) will raise interest rates in the September policy meeting.

AUD/JPY technical analysis suggests a bullish near-term bias, with price advancing above the 20-period exponential moving average at 113.09 and the Relative Strength Index (RSI) staying in positive territory. Initial support is seen at the 20-day EMA at 113.09, which should act as a dynamic floor on pullbacks.