AUD Surges Against JPY as RBA Hike Odds Skyrocket

The Australian Dollar (AUD) surged against the Japanese Yen (JPY), reaching near 114.30 during Wednesday's European trading session, as market participants increased their expectations of a Reserve Bank of Australia (RBA) interest rate hike following hotter-than-expected inflation data.

According to Deutsche Bank analysts, the July Australian Consumer Price Index (CPI) data showed a headline CPI rise of 3.5% year-over-year in July, down from 3.8% in June but ahead of the 3.3% consensus. This upside surprise has led traders to raise their pricing for an RBA rate hike at the September 28-29 meeting from 10% to 32%, with some economists now expecting a 25bps September hike.

The Bank of Japan (BoJ) is also expected to raise interest rates in its September policy meeting, which has contributed to the JPY's decline against key peers. The AUD/JPY pair holds a bullish near-term bias as it advances above the 20-period exponential moving average (EMA) at 113.09, keeping the broader uptrend supported.

Initial support for the pair is seen at the 20-day EMA at 113.09, which should act as a dynamic floor on pullbacks. As long as AUD/JPY defends this level, buyers are likely to retain control, with scope for the cross to grind higher while momentum remains constructive.