During the European session on Friday, the AUD/USD pair traded at 0.7190, registering a slight decline of 0.0005 or 0.125% from the previous day, indicating a rally that has met resistance. The pair experienced a significant surge on Thursday, propelled by the Japanese authorities' intervention in the foreign exchange market, which caused a temporary weakening of the US dollar index. This pushed the AUD/USD close to the upper boundary of its recent trading range. However, the upward momentum proved unsustainable. On Friday, the pair fluctuated lower, reaching a high of 0.7205 and a low of 0.7182, failing to maintain the gains from Thursday's rebound and highlighting market caution regarding the lasting impact of Japan's intervention.
The formal intervention by the Bank of Japan temporarily removed a key macroeconomic headwind for the Australian dollar. This action not only induced broad-based US dollar weakness but also rekindled market risk appetite, supporting the AUD/USD's climb towards the top of its recent range on Thursday. Nevertheless, the rally lost steam by Friday, with the pair retreating noticeably. Given the Australian dollar's high sensitivity to changes in market volatility, bond yields, and energy prices, its short-term trajectory has become more uncertain. Despite confirmed intervention from Japan, it has not provided sustained upward support for the currency.
From a technical perspective, Thursday's closing price for AUD/USD broke above the key level of 0.7188, while also finding support from an ascending trendline established since late March. This initially maintained a bullish structure, opening the potential for a challenge towards the key resistance levels at 0.7222 and 0.7283. However, Friday's pullback is testing this setup.
The removal of macroeconomic pressure initially fueled a strong rebound for the Australian dollar. The market widely believes Japan's Ministry of Finance directed the BOJ to intervene on Thursday to bolster the yen, with speculation also suggesting possible actions in the crude oil futures market. Departing from the typical post-intervention silence, Japanese officials formally acknowledged the operation this time. Analysis by Wall Street FX strategists of BOJ accounts suggests the intervention scale was approximately $34.5 billion, marking Japan's latest move to support the yen. As the USD/JPY rate approached its highest levels since mid-2024, Japanese Finance Minister had previously warned of "bold action," signaling intervention was imminent as patience with the yen's persistent weakness wore thin.
The impact on financial markets was significant. Since the outbreak of the Iran conflict, a combination of surging crude oil prices, rising bond yields, and a strengthening US dollar had acted as constraints on risk assets, which had previously been in a broadly bullish environment for about a month. The sudden removal of these constraints triggered a broad surge in risk assets, with the highly risk-sensitive Australian dollar standing out, driving the AUD/USD back towards the top of its trading range observed over the past two-plus weeks. The AUD has recently shown high sensitivity to volatility across multiple asset classes. Specifically, it exhibits a strong positive correlation with the Australia-US interest rate differential and the S&P 500 index (as a proxy for risk assets), while showing a significant negative correlation with energy prices and implied volatility indicators. Against this backdrop, the sharp rally in the AUD was unsurprising, representing a near-perfect storm for its appreciation. Over a longer horizon, the AUD's trajectory remains heavily influenced by overall market risk sentiment, suggesting this may be a more reliable gauge for assessing future directional risks. Observing current price action, Thursday's sharp gains were not sustained, with the AUD pulling back on Friday. The key market focus now shifts to whether US dollar weakness will persist following Japan's confirmed intervention, whether the AUD can regain support, and if Thursday's surge can still act as a catalyst for a bullish breakout.
The upper boundary of the consolidation range has returned to market focus. The daily chart shows that while the AUD/USD remains below the high set on April 17th, it is notable that Thursday's close broke above the March peak of 0.7188. This breakthrough contrasts with previous unsuccessful attempts to hold above key levels that led to pullbacks, marking a significant signal. Although not a textbook-perfect breakout, it is also noteworthy that the rebound initiated near the ascending trendline from the late-March low, continuing the pattern of finding buyer support around the 0.7100 level. Despite a bearish divergence emerging between price action and the 14-day Relative Strength Index (RSI), the RSI remains in the bullish territory above 50. Furthermore, the Moving Average Convergence Divergence (MACD) continues to hold in positive territory above its signal line. This indicates that while upward momentum may not be accelerating, bullish momentum has not entirely dissipated in the near term, though Friday's decline has challenged the bullish stance. Currently, the AUD/USD remains above its key medium, short, and long-term moving averages, all of which maintain a positive slope, preserving some foundation for the continuation of the uptrend. However, uncertainty has increased, and the likelihood of resuming the bullish trend requires further observation of subsequent price action. Establishing long positions is not currently advised, especially considering reduced market liquidity due to Labor Day holidays in several Asian markets and Friday's pullback. However, if the AUD/USD can reclaim and hold above the 0.7188 level during the European session amid increased fund flows, initiating long positions above this level with a tight stop-loss placed below could be a reasonable strategy, targeting the June 2022 high of 0.7283. The immediate resistance remains the April 17th high of 0.7222; hesitation near this level might signal profit-taking by bulls, particularly given the dent in confidence from Friday's decline.
Risk appetite remains the key factor, with close attention on news related to the Strait of Hormuz. Regarding potential catalysts for market volatility heading into the weekend, further intervention by Japanese authorities appears likely if the yen weakens again during Asian morning trade. The Japanese Finance Minister has explicitly stated that officials will monitor FX markets and remain on standby even during Japanese holidays, hinting at possible intervention in overseas markets during non-trading hours. Since Japan has formally acknowledged the previous intervention, any renewed action would send a stronger signal of the Ministry's firm stance against yen weakness, likely leading to further USD depreciation and providing additional support for the AUD, potentially alleviating Friday's downward pressure.
Concurrently, news developments concerning the Strait of Hormuz are critical, both for today and the longer term. With optimistic corporate earnings expectations largely priced in and market expectations for an RBA rate hike next week almost fully priced, developments in the Persian Gulf region are poised to be a key volatility driver for cyclical risk assets. Their evolution will likely determine whether the AUD/USD's breakout attempt ultimately succeeds in triggering a sustained rally or falters further following Friday's retreat.