Sean Callow from Westpac anticipates the risk barometer AUD/JPY pair to test 72.00 by the Mach month-end and drop to 70.00 by June on the condition of two RBA rate cuts this year. The pair currently trades near 73.43 during the early Tuesday.
AUD is actually strongest in the G10 so far in February, including a 1.7% gain versus JPY. The RBA’s renewed optimism is the key to this outperformance. It retained its 2.75% Australia 2020 growth forecasts, well above Westpac’s 1.9% view.
We lowered our growth forecasts in response to the bushfires and COVID-19 but the RBA has not. The implied cash rate for Dec 2020 has bounced from 0.32% to 0.47% over the past 2 weeks, boosting A$ (Australian dollar).
The Bank of Japan meanwhile is on hold and not buying many JGBs but after dismal Q4 GDP (pre-virus), we will need to consider looser policy in the coming months.
We see both AUD/USD and USD/JPY trending lower multi-week, limiting the pace of the AUD/JPY decline that remains our base case (largely premised on 2 RBA rate cuts this year), towards 72 end-March and to cycle lows around 70 by June.