Sean Callow, Research Analyst at Westpac, explains that AUD/JPY has been weaker than they expected recently, jolted by the US equity slide on 21 March and struggling to recover thereafter.

Key Quotes

“Speculative positioning should now be less lopsided, yet the pair is probably still vulnerable short term to a test of the low 82 area, just ahead of the 200 day moving average.”

“Recovery is in prospect multi-week, however. We believe it is too soon for US equities to factor in failure of the Trump administration to deliver sizeable tax cuts, limiting the weight on AUD/JPY from risk aversion.”

“Moreover, USD/JPY should start to ratchet higher as Japanese investors put funds to work in the early weeks of the new fiscal year, encouraged by what should be growing expectations of a June Fed rate hike.”

“AUD/USD meanwhile should find support from mostly resilient commodity prices and no real appetite in local interest rate markets to price in further RBA easing, given the concern over housing market strength.”

“We see AUD/JPY recovering from near term trade with an 82 handle to around 86 during May. But as late March shows, this pair remains vulnerable to risk aversion at any time.”