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The Australian Dollar remains under pressure after the disappointing inflation data while the Japanese yen is stable after the BOJ decision. What’s next?

Here is their view, courtesy of eFXdata:

Societe Generale Research discusses AUD/JPY outlook and  recommends staying short the cross on a medium-term basis.

“With risk sentiment so fragile the yen appears to be diverging from measures of risk. The chart plots AUD/JPY against the MSCI world equity index and to the naked eye, it shows how AUD bulls were frustrated in 2017/2018, and how yen bulls are being frustrated at the moment,” SocGen notes.

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A rolling correlation of AUD/JPY and equity indices is better than the (still positive) correlation with USD/JPY but what’s surprising is that in the last few weeks, it hasn’t really fallen much. It just feels as though it has!… The very slow and controlled crawl in USD/CNY towards 7 plays a part in the yen’s inability to rally, and  we worry about what happens when that level breaks, but  we’re persisting with AUD/JPY shorts, because the AUD will surely feel a move in USD/CNY more keenly than the yen will,” SocGen argues.

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