AUD/JPY: Two-way price action - Westpac

Sean Callow, Research Analyst at Westpac, explains that risk barometer AUD/JPY fell heavily in February and has seen more two-way price action since then, with its recent modest decline consistent with broad US dollar strength but no major change in global risk appetite.

Key Quotes

“Our baseline scenario multi-month is for the US dollar to gain against both AUD and JPY, as Fed tightening ensures yield spreads continue move in the greenback’s favour. This would leave AUD/JPY around 82-83.”

“Shorter term though, there is plenty of scope for gyrations in the pair. The calendar in late May and early June, for example, includes the US decisions on wide-ranging tariffs on Chinese imports, expiration of steel and aluminium tariff exemptions and the Trump-Kim summit in Singapore.”

“Australia’s domestic backdrop is broadly supportive, with the RBA remaining upbeat on growth and Q1 GDP shaping up fairly well. Australia’s commodity prices are also recovering some of March’s lost ground.”

“With BoJ monetary policy firmly on hold as core inflation remains stubbornly low, AUD/JPY looks to be reliant on a return of risk aversion in order to probe 81, with the near term risks mostly tilted higher.”