I plotted the temperature and VWC on the same chart and you can see that they are very much linked together. Can you answer whether the sensor is completely buried in the soil, and if so how deep is it? If only the fiberglass tines are inserted into the soil but the rest of the sensor body is above ground and subjected to direct sunlight or drastic temperature swings, then I would assume that’s what causing the issue.
Can you also post the actual sketch you used on your Arduino board to capture your data and write it to the memory card. I can also show you how to record more significant digits for the VWC parameter so that you get finer resolution and a smoother curve. But I need you to post the actual sketch you used for the logger. And tell us exactly how the sensor was installed in the ground. Can you repeat this experiment indoors where the temperature is constant and in a pot of soil or somewhere where you can purposely vary the moisture content?