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Sean Callow, analyst at Westpac, points out that AUD/JPY pair crashed out of its trading ranges on 1 August when President Trump tweeted that 10% tariffs would be imposed from 1 September on the $300bn of US goods imports from China currently exempt showing a powerful illustration of how this pair remains a reliable proxy for sharp changes in risk appetite, and more specifically for the state of US-China trade relations.

Key Quotes

“It is hard to make the case for a sudden rebound in AUD/JPY in response to a big breakthrough in US-China trade talks. But there is arguably enough bad news priced in, with speculative positioning firmly short both AUD/USD and USD/JPY.”

“The RBA’s gradual dovish turn then its delivery of rate cuts have obviously weighed on AUD crosses this year but near term, AUD/JPY might find some support as the RBA holds steady in Sep, holding its view that the Australian economy is at “a gentle turning point.”

“Moreover, resource company dividend payments should lend AUD some support in coming weeks. While AUD/JPY rallies will remain constrained by trade tensions and the RBA’s focus on stubborn unemployment, in the next few weeks at least, we expect support on dips towards 71 and scope for a push to 74.”