AUD Rallies Against JPY as Divergent Policies and Sentiment Take Hold

The Australian dollar (AUD) has been on a tear against the Japanese yen (JPY), driven by divergent monetary policies and market sentiment. The AUD/JPY exchange rate recently tested the 50-day EMA, as well as the mid-point of its overall range.

Market participants are pricing in another interest rate hike from the Reserve Bank of Australia (RBA), following Governor Bullock's warning about upside inflation risks materializing. This has bolstered the AUD's support levels.

In contrast, the Bank of Japan's (BOJ) recent policy rate hike to 1.25% was met with dissenting votes, limiting the hawkish guidance and reducing the credibility of the tightening signal for the JPY.

The AUD/JPY pair is currently in a fair-value area from this year, making a break above ¥113 a significant event that would indicate a strong turn of events. However, pullbacks are still likely to find support near ¥110, with the 200-day EMA adding further support at that level.