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  • AUD/JPY breaks the support line of a short-term descending triangle after Aussie GDP flashed heavy contraction.
  • Australia’s Q2 GDP slumps the record low of 7.0% versus -0.3% prior.
  • BOJ Deputy Governor Masazumi Wakatabe also crossed wires and spoke dovish.
  • “Serious differences” among the US policymakers over stimulus, Sino-American tension fails to disappoint optimists.

AUD/JPY stands on a slippery ground while losing over 20 pips just after Australia’s Q2 GDP release on the early Wednesday. The pair earlier struggled to justify the risk-on mood as Aussie traders remained cautious.

Australia’s second quarter (Q2) GDP dropped 7.0%, the largest slump on record, due to the coronavirus (COVID-19)-led economic slowdown. In doing so, the growth figures, actually contraction, defies the previous quarter’s -0.3% QoQ results.

Read: Breaking: Aussie GDP contracts more than expected, hurting AUD crosses

On the other hand, the BOJ’s Wakatabe also followed the foot-steps of the RBNZ Governor Adrian Orr while showing readiness to support unconventional monetary policy tools if needed. The policymakers said, “Japan’s economy in a very severe state but showing some signs of a pickup. Will take additional easing steps without hesitation if needed with an eye on the impact of a pandemic on the economy, prices for time being.”

Market sentiment remains mostly positive despite the recent comments from US House Speaker Nancy Pelosi suggest “serious differences” between the ruling Republicans and opposition Democratic Party over the coronavirus (COVID-19) relief package. Also challenging the mood could be the early-day statements from US Secretary of State Mike Pompeo who cited upcoming announcements concerning China while also teasing the “cold war” situations between the global superpowers. It should also be noted that the uncertainty surrounding the Japanese leadership after Prime Minister Shizo Abe’s resignation also probes the bulls.

Supporting the market optimism could be the news that AstraZeneca will start its final trials over the much-awaited virus vaccine. Also on the positive side are receding cases from Australia and Tokyo, 90 and 170 respectively.

Having witnessed the initial reaction to the key Aussie data, AUD/JPY traders will have to pay close attention to the news feeds amid a light calendar. In doing so, updates concerning Japan’s PM selection and the US-China relations may gain major attention.

Technical analysis

The previous day’s Doji, followed by Wednesday’s downbeat performance, joins overbought RSI conditions on the daily chart to keep the sellers hopeful. However, an ascending trend line connecting highs marked in June and July, near 77.00, will be the key support to watch.

 

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