AUD/JPY: Likely needs a correction, 76.30 is key, but not until Aussie Jobs come out tonight

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  • AUD/JPY has been attempting to recover, but the yen remains better bid as trade risks keep the markets on amber and investors on the sidelines. 
  • AUD/JPY is currently trading at 75.90 between a range of 75.52 and 76.17.

The FX space has been carving out deep-rooted trends of late, factoring risks associated with a protracted trade spat between the U.S. and China. AUD/JPY, often regarded as the market’s risk barometer, has fallen in a steep channel from not far off the 81 handle to as low as 75.52 in a matter of a business month; the steepest decline since December 2018s and the stock-market rout. Indeed, the AUD is the second worst performing G10 currency over the past month having fallen 3.5% vs. the USD

The bears are in control, although there are risks to the upside on positive outcomes from trade talks that are being planned to take place in Beijing as soon as early next week; far sooner than what had been speculated at the start of this week. 

“Looking forward we expect AUD/USD to remain on the back foot and see scope for slippage towards the 0.68 area by year end,”

analysts at Rabobank, however, argued.

The analysts raised a number of bearish fundamentals, one of which, when taking into consideration the poor data from overnight, (Chinese retail sales, industrial output and investment data for April all notched up worse than expected results), then such views as theirs likely figure. The analysts point out that ‘Australia’s largest exports are iron ore and coal which are used to fuel China’s huge appetite for steel.’ It stands to reason that ‘if Chinese growth is slowing, this is likely to be reflected in demand for steel.’

Eyes on Aussie Jobs data

The next major risk for the Aussie and cross, on the calendar, will come from the Aussie Jobs report, (Unemployment Rate) slated for later today in the Asian session. Considering the RBA’s focus here, whereby, in its policy statement the central bank remarked that “the Board will be paying close attention to developments in the labour market at its upcoming meetings”, today’s report will be a critical one with a key focus on wage inflation. 

Wage inflation has been subdued of late; Last night’s Q1 wage price index showed subdued growth of just 2.3% y/y – (The analysts at Rabobank noted that over the past 10 years the average wage inflation rate is 2.8% y/y and over the last 20 year, the average rate is 3.2% y/y). The next RBA meeting is just around the corner and its a live one. “There is a strong chance that the RBA will announce a rate cut at its next policy meeting on June 4.  We see risk that this would enhance the downtrend in AUD/USD towards 0.68 on a 6-month view,” the analysts forecasted. 

AUD/JPY levels

AUD/USD is up to the trendline resistance and has stochastics in its favour. The Yen cross, AUD/JPY, is also looking bid above the 20-hr SMA although the bearish cloud and general risk-off sentiment puts the old adage, ‘the trend is your friend’, a likely force favouring an extension to the downside, while the price trades below the 76.30s at least. The 50% Fibo, where the price has stablised, will need to give first. A break of the Fibo will open risk towards 75.20s (4th Jan lows) and then the 61.8% Fibo down at 74.70. However, whether such a steep decline in the pair is sustainable is questionable and a pullback above 76.30 and then cloud resistance opens risk to 76.80 and then 77 the figure.

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