AUD/USD rips as dollar dumps on intervention speculation

• Japan intervention speculation weighs on US dollar
• Risk of follow up intervention in thin Asia trade
• Hormuz headlines key swing factor for directional risk
• AUD/USD near range highs, breakout beckoning?

Summary

Japan’s likely FX intervention has temporarily removed a key macro headwind, triggering USD weakness and reigniting risk appetite, lifting AUD/USD back towards range highs. With the Aussie highly sensitive to volatility, yields and energy prices, the near-term setup favours further upside, especially if intervention resumes. Technically, the close above 0.7188 and support from the late-March uptrend keeps the bullish case intact, opening a move towards 0.7222 and 0.7283.

Macro brake released, Aussie rebounds

It’s highly likely the Japan's Ministry of Finance instructed the Bank of Japan to intervene to strengthen the yen on Thursday, with speculation it may also have been active in crude oil futures. As is usually the case when Japan intervenes, authorities have neither confirmed nor denied any action, although it was obvious from the language used beforehand that patience was wearing thin as USD/JPY hit levels not seen since mid-2024.

Pushing aside the speculation over what may or may not have occurred, the market impact was undeniable. Since the Iran war began, the combination of soaring crude prices, higher bond yields and a stronger dollar had acted as a brake on what has otherwise been a bullish environment for risk assets over the past month. When that brake was abruptly removed, risk ripped, including the risk-sensitive Australian dollar, sending AUD/USD back towards the top of the sideways range it has traded in for more than a fortnight.

Source: TradingView

A quick glance at my correlation matrix tracking relationships between the Aussie and other financial assets over the past week, month and quarter shows it has been highly sensitive to shifts across multiple asset classes recently. It’s demonstrated strong positive relationships with yield differentials against the United States and riskier assets, proxied by the S&P 500, along with equally strong negative correlations with energy prices and implied volatility measures. Against that backdrop, it’s no surprise the Aussie went ballistic. It was close to a perfect storm for it to surge.

Extending the time horizon, it’s clear the Aussie continues to sing to the tune of broader risk appetite, suggesting that’s likely the more reliable guide when assessing directional risks ahead.

The question now is whether Thursday’s surge can stick, and beyond that, whether it may prove to be the catalyst for a bullish breakout.

Range highs back in focus

As seen on the daily chart below, while AUD/USD remains below the high set on April 17, it’s notable Thursday’s close was above 0.7188, the swing high set in early March. That differentiates this probe from earlier attempts which failed, delivering downside reversals. While not a textbook setup, it’s also notable the bounce yesterday originated from the uptrend established from the late March lows, continuing the pattern of dips towards 0.7100 being bought.

Source: TradingView

Despite bearish divergence with price, RSI (14) remains well above 50 while MACD continues to sit above the signal line in positive territory. Upside momentum is no longer building, but it remains with the bulls for now. With the pair sitting above key medium and longer-term moving averages, all with positive slopes, the case for a resumption of the bullish trend is building.

I’m not rushing to set longs, especially with many Asian markets shut for Labour Day holidays, but if AUD/USD can hold above 0.7188 as flows pick up into the European session, entries above the level with a tight stop beneath look like a decent setup, targeting the June 2022 high of 0.7283. The April 17 high of 0.7222 is the immediate level overhead to watch, with hesitation there perhaps a signal to take some or all risk off the table.

Risk appetite key, watch Hormuz headlines

As for potential volatility catalysts into the weekend, there’s a decent risk of follow-up intervention in the yen should weakness resume, as seen in early Asian trade. That would send a powerful message that the MoF means business in capping yen weakness. If that eventuates, it would likely result in further US dollar weakness, adding to the case for additional Aussie upside.

Likewise, headlines relating to the Strait of Hormuz remain critical, both today and over the longer term. With optimism surrounding earnings largely in place and an RBA rate hike next week close to fully priced, developments in the Gulf remain a key swing factor for cyclical risk assets, potentially determining whether this breakout attempt sizzles or fizzles.