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  • AUD/JPY bulls weigh the market positioning in AUD and risk-on factors. 
  • Economic data back on vogue at the start of a new quarter. 

At the time of writing, AUD/JPY is trading at 74.23, down -0.35% within the day’s range of between 73.91 and 74.70. 

With month-end pressures now in the rearview mirror, there is going to be a focus on global economic data. 

However, though this is a holiday-shortened week, liquidity might be challenging and equities will continue to be the primary factor for the cross. 

AUD/JPY can be expected to remain a choppy trading range ahead of critical jobs data from the US. 

Today’s data has been with the US ISM manufacturing release and the June FOMC minutes which arrive at the top of the hour which will help to define how risk sentiment evolves ahead of Thursday’s (early) US Nonfarm Payrolls report. 

The first risk-on reaction today came from economic activity in the US’ manufacturing sector, boosting wider risk sentiment and thus AUD/JPY.

This expanded in June with the ISM’s Manufacturing Purchasing Managers’ Index (PMI) improving to 52.6 from 43.1 in May. The reading came in better than the market expectation of 49.5.

Commenting on the data, “June signifies manufacturing entering an expected expansion cycle after the disruption caused by the coronavirus (COVID-19) pandemic,” said Timothy R. Fiore, Chair of the ISM’s Manufacturing Business Survey Committee. 

Major concerns in the US over COVID-19

Meanwhile, there are major concerns in the US over COVID-19.

Top disease researcher Dr Anthony Fauci has told the US Senate that he “would not be surprised” if new virus cases in the country reach 100,000 per day.

“Clearly we are not in control right now,” he testified, warning that not enough Americans are wearing masks or social distancing.

During the hearing, he said about half of all new cases come from four states.

The surge, which is occurring particularly strongly in southern and western states, has forced at least 16 states to pause or reverse their reopening plans, according to CNN. 

Slowing growth in new worldwide cases is a focus for risk appetite

Slowing growth in new cases shifts the focus to global drivers such as the direction of USD. 

A weakening USD over the coming months could be a godsend to the Aussie bulls as the global and US recovery strengthens.

However, the bulls are not out of the woods yet. The IMF significantly downgraded the growth outlook for 2020; a factor which should hamstring the Aussie and related FX. 

A weakening USD over the coming months as Fed keeps the printing press open will remain a positive factor for risk and AUD/JPY.

Moreover, the latest CFTC data on CME FX futures positions shows leveraged funds are increasingly upbeat on the Aussie dollar.