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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.

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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.