Australian employment and the BoJ meeting tomorrow make AUDJPY of interest as it considers a run to Y90.
Currency markets remained fairly quiet in Asia, in stark contrast to yesterday when the Australian Dollar dominated headlines and volatility. With the technicals supporting further gains we await to see if Australian employment and the BoJ meeting allow for the run to continue.
As expectations for unemployment are to rise slightly and employment drop to 15k (42k prior) then we only have to achieve the consensus to remain supported, or exceed expectations to send AUD higher. If this is coupled with a lowered outlook by BoJ then the potential for AUDJPY to test or even break 90 are fairly high.
As we expect no changes to policy tomorrow, it may be the outlook report that is more telling about their confidence of the recovery to be sustained. Inflation forecasts will likely be lowered in response to the sanguine realised inflation and expectations endured this past quarter. With household spending, low wage growth and weak producer prices, it is hard to justify their forecasts, let alone a 2% target. Its highly unlikely QQE or the YCC (yield curve control) policies will be changed which makes tomorrow’s meeting more likely to be around the outlook. Further out, as global bond markets remain threatened by central bank hawks, we cannot rule out a change to the yield control policy at some point as it will become unattainable if yields continue to rise.
This leaves potential for further Yen weakness which could help AUDJPY head for Y90. Currently the strongest performer this year among the G10, sentiment and technicals point higher for AUD which makes AUDJPY longs a high probability trade over the coming sessions.
RSI on D1 has risen above 70 which some would consider an area of ‘overbought’. Yet as there are no clear signs of a bearish divergence and that RSI is merely backing up the bullishness of the preceding rally from 81.77, we see no immediate threat to further gains over the near-term. If we move down to H4 then a bearish divergence has been forming since the 29th June yet the spike higher yesterday puts this minor threat on the back-burner.
We also see a case for USDPY correcting higher following the meeting. This may also be the case for USDJPY. Despite traders being net short USD overall, traders are long USD against the Yen by $12.3bn after spiking higher last week. This suggests upwards pressure on JPY and the BoJ meeting may be the catalyst to help USDJPY recover from the 112 lows.
