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  • AUD/JPY rising a softer yen and risk-on tones. 
  • RBA in focus while AUD remains sensitive to the overall tone in risk appetite.

AUD/JPY has been trading on the bid at the start of this week with a slightly better risk-tone in markets pertaining to what appears to show a slight slowdown in the spread of COVID-19. At the time of writing, AUD/JPY is trading at 66.37 and between a range of 64.98 and 66.60 +2.16% on the day so far. 

The COVID-19 spread is the main driver with stimulus measures being an underbelly of support for risk-on, albeit dashed with an element of great uncertainty containing a full-on drive in positive risk asset classes. AUD/JPY, however, is enjoying some relief from the weekend news pertaining to what appears to be a sign of slowing numbers of new cases and death tolls. However, this is a week which US President Donald Trump regards and warned of being “the toughest week” – more on that here: COVID-19 Updates: A crucial week ahead for the debacle.

As for the yen, net long positions dropped back for a second consecutive week following a positive spell in early March for the first time since October reflecting the JPY’s safe-haven status. However, given the spike in COVID-19 cases and the state of the economy, there could be a reluctance to stay invested in such an uncertain trade. Moreover, on a 1-month view the JPY has lost ground vs the USD in the spot market reflecting the latter’s dominant position as a safe haven.

RBA in focus

Meanwhile, all eyes will turn to the Reserve Bank of Australia today while AUD remains sensitive to the overall tone in risk appetite. As analysts at TD Securities (TDS) argued, “following rapid easing and the move into unconventional policy last month, we expect the RBA to keep the cash rate on hold at 0.25%. We don’t anticipate the RBA to announce any adjustments to policy, but any indication on volume and frequency of purchases will garner attention.”

  • RBA Preview: On hold, statement to be balanced, marginal risks for AUD

The analysts at TDS suggest that there were two key pieces of information from the minutes of the RBA’s 18th March board meeting released last week:

  • 0.25% is the effective lower bound. The RBA stated “Members had no appetite for negative interest rates in Australia”.
  • The downturn could extend beyond Q2: “….it was likely that Australia would experience a very material contraction in economic activity, which would spread across the March and June quarters and potentially longer.”

AUD/JPY levels