AUD/JPY: Definition, Factors Influencing, How to Track and Trading Strategy

AUD/JPY stands out as one of the most traded pairs among major currencies in the global financial markets. Both currencies play significant roles in the global economy, making their exchange rate an interesting one to follow and trade.

This currency pair is actively traded in the foreign exchange (Forex) market and its exchange rate is influenced by factors such as interest rates, economic data, and geopolitical events in both Australia and Japan. Today, we will learn what AUD/JPY is, the factors that affect the value of this currency pair, how to monitor AUD/JPY, and the best trading strategies.

What is AUD/JPY?

AUD/JPY is a currency pair that tells you how much the Japanese Yen (JPY) is worth in terms of the Australian Dollar (AUD). Specifically, the AUD/JPY exchange rate reflects the amount of JPY you can exchange for one AUD. For instance, if the exchange rate is 80.00, this means that 1 AUD is equivalent to 80 JPY.

In the FOREX89 market, currency pairs like AUD/JPY are categorized as “minor pairs” or “cross currency pairs” because neither of the two currencies involved is the US Dollar (USD). However, the Australian Dollar and the Japanese Yen are two of the most widely traded currencies globally, making the AUD/JPY pair quite liquid and accessible to traders.

After understanding the definition of AUD/JPY, the next step is to take some time to explore the factors that influence the value of this currency pair.

Factors Influencing the Value of AUD/JPY

The value of the AUD/JPY currency pair will be influenced by many different factors, including:

Interest Rates

The interest rate policies set by the Reserve Bank of Australia (RBA) and the Bank of Japan (BOJ) have a significant impact on the value of AUD/JPY. Higher interest rates in Australia tend to increase the value of the AUD as investors seek higher returns, whereas lower rates in Japan could lead to a weaker JPY. Traders on platforms like Pepperstone closely monitor these interest rate decisions to anticipate potential price movements.

Economic Data and Indicators

Economic reports such as GDP growth, unemployment rates, inflation, and trade balance figures from both Australia and Japan influence investor sentiment and currency values. Strong economic performance in Australia can push the AUD higher, while weak economic data from Japan might weaken the JPY.

Commodity Prices

Australia is a major exporter of commodities, particularly iron ore, coal, and natural gas. As the price of these commodities rises, the Australian economy strengthens, and consequently, the AUD appreciates. Conversely, when commodity prices fall, the AUD could weaken. Since Japan is heavily reliant on imports for its energy needs, fluctuations in commodity prices often have a significant impact on the JPY as well.

Global Risk Sentiment

The Japanese Yen is often seen as a “safe-haven” currency. In times of global economic uncertainty or financial crises, investors tend to flock to the JPY for safety, which can drive up its value. On the other hand, the AUD is considered a more risk-sensitive currency, and its value tends to rise in periods of economic growth or market optimism. Technical traders often look for divergence in momentum indicators, such as RSI or MACD, to anticipate potential trend reversals in the AUD/JPY pair.

Political Events

Political instability or changes in government policy in either country can also influence the AUD/JPY exchange rate. For instance, Australian elections or significant political events in Japan could lead to changes in investor confidence, affecting the value of the AUD and JPY.

Trade Relations

Australia’s trading relationship with Japan and other countries in the Asia-Pacific region is crucial for the AUD/JPY FX rate. Any significant changes in trade policies, tariffs, or international agreements can impact the exchange rate.

How to Track AUD/JPY Exchange Rate

Tracking the AUD/JPY exchange rate is an essential part of forex trading. There are several ways you can monitor this currency pair:

Forex Trading Platforms: Trading platforms such as MetaTrader 4/5 (MT4/5), cTrader, and Pepperstone provide real-time charts and data for this currency pair. These platforms allow traders to monitor price movements, set up alerts, and even use automated trading strategies.

Economic Calendars: Economic calendars list upcoming economic events and reports that may affect the value of AUD/JPY.

News and Analysis: Keeping up with the latest news from both Australia and Japan, as well as global economic developments, is key to understanding the direction of the AUD/JPY rate.

Technical Analysis: Traders use tools like trend lines, moving averages, and candlestick patterns like Doji Candle to identify potential entry and exit points for AUD/JPY trades. A doji candle often signals market indecision and can indicate potential trend reversals.

Forex Brokers’ Platforms: Many forex brokers, including Pepperstone, provide real-time exchange rates, historical data, and charting tools for currency pairs like AUD/JPY.

How to Trade AUD/JPY in the Forex Market

Trading AUD/JPY can be highly profitable if you understand the market dynamics and follow a disciplined approach. Here are some key strategies for trading AUD/JPY:

Trend Following

One of the most common strategies is trend following. By identifying the prevailing trend (whether bullish or bearish), traders can enter trades in the direction of that trend. If the AUD/JPY pair is trending higher, a trader might look for buying opportunities. Conversely, if the pair is in a downtrend, shorting the pair could be a viable option.

Range Trading

In a range-bound market, where the price of AUD/JPY is fluctuating between established support and resistance levels, traders can buy at support and sell at resistance. This strategy works well when the market lacks a clear trend and is instead moving sideways.

Breakout Trading

When AUD/JPY FX breaks through key support or resistance levels, it can signal the start of a new trend. Breakout traders aim to enter trades as the price moves beyond these levels, anticipating that momentum will carry the price further in the breakout direction.

Fundamental Analysis-Based Trading

Trading based on economic data and AUD/JPY news releases is another effective approach. For example, if Australia’s GDP grows faster than expected, it could lead to a stronger AUD, encouraging traders to buy AUD/JPY. Conversely, disappointing economic data from Japan may prompt traders to sell the JPY.

Risk Management

Like all forex trading, managing risk is crucial. Set stop-loss orders to limit potential losses and use proper position sizing to control risk exposure. Divergence between price action and indicators such as RSI or MACD can be a key warning sign of a potential trend reversal, helping traders adjust their positions accordingly. Doji candles also play a crucial role in risk management, as they can indicate potential turning points in the market.

The world of forex trading offers a vast range of opportunities for traders to profit from currency fluctuations, and AUD/JPY is one of the most widely traded currency pairs, providing numerous opportunities for forex traders. By using the right tools and strategies, traders can effectively monitor AUD/JPY and make informed decisions in the forex market. In the next article, readers can learn more about AUD/JPY