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The AUD/JPY pair offers some interesting trading opportunities, some that you may not be able to exploit with the more popular pairs such as the EUR/USD, USD/JPY or the GBP/USD pair, despite being somewhat range bound.

This pair is an ideal choice for traders willing to venture beyond the boundaries of the main currency pairs, and below are some pointers on the fundamentals that affect the AUD/JPY pair, and trading suggestions for the pair under the current market conditions.

Background to the Currencies

Australia is a resource-based economy, which means that changes in prices of important commodities such as gold and oil will greatly affect the price of AUD. A good way of knowing how the AUD will react to gold prices is to watch how the USD fares against gold. When the dollar strengthens against gold, the AUD is likely to show some weakness and vice versa. On the other hand, Japan relies heavily on the export market, for manufactured goods and technology in particular. As a result, the Yen is very sensitive to changes in trade balances or expectations regarding the same by investors.

These extremely different economic set-ups mean that the same factor can affect AUD/JPY in both directions at once, cancelling each other out to some extent. So understanding the impact of these factors on the pair is much more complex than in some other pairs, which explains its relative lack of popularity.

Economic and Political Events that Might Affect the Value of AUD/JPY Pair

As mentioned above, the Australian dollar (AUD) is significantly affected by changes in oil and gold prices, thanks to the country’s dependence on export of commodities. Consequently, the changes in gold prices will offer you some guideline regarding the AUD’s price, but it is also worth keeping an eye on other commodities such as iron and other ores, especially since Atlas Iron is the second biggest company on the ASX 100, and 6 of the top 20 in that index are companies with major mining interests.

Additionally, given that both the AUD and the JPY individually are some of the most traded currencies in the markets, events affecting the global currency market are more than likely to spill over to the AUD/JPY pair.

The interest rate differential between the reserve Bank of Australia (RBA) and Bank of Japan (BOJ) is most likely to affect the value of this currency pair on an ongoing basis. For this reason close monitoring of interest rate announcements in both countries is very much recommended.

Recent Economic Events Affecting the Movement of the AUD/JPY

Various recent economic events have had a visible impact on the price movements of the AUD/JPY pair. For instance, just this month, Japan reported the first trade deficit in over a decade, an event that resulted in highs not experienced in the last five years for the USD/JPY pair. Nevertheless, the impact on the AUD/JPY is not evident, thanks to downward pressure on the AUD since April, which has resulted in a mitigating influence on the currency pair’s value.  This is a continuation of the theme we’ve seen so far with AUD/JPY that there are often extremely contradictory forces impacting the pair, which contribute to it typically trading within a fairly restricted range.

Trading Opportunities on the AUD/JPY

Currently, the AUD/JPY has been showing a slight upside bias since April. Still, the currency offers some interesting trend-based trading opportunities. Occasional drops in prices below the 200-day moving average offer great opportunities for trading in the direction of the of the 100-day moving average. A buying opportunity of this nature just came up (September 29 and 30) and is still currently viable. The AUD/JPY also offers great opportunities for forex traders proficient with the use of range-bound strategies such as Bollinger Bands due to pair’s relative confinement to a trading channel over most of the year.

While many may look at AUD/JPY as lacking some of the clear cut trading opportunities of other more popular pairs, the pair does present solid opportunities for the use of range-bound strategies thanks to the assortment of conflicting factors impacting its value causing it to be restricted to a typical trading channel.

Prepared by IG Australia


 This information has been prepared by IG Markets Limited.  ABN 84 099 019 851, AFSL 220440. We provide an execution-only service. The material on this page does not contain (and should not be construed as containing) personal financial or investment advice or other recommendations, or an offer of, or solicitation for, a transaction in any financial instrument, or a record of our trading prices. No representation or warranty is given as to the accuracy or completeness of the information. Consequently any person acting on it does so entirely at his or her own risk. The information provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who view it. IG accepts no responsibility for any use that may be made of the comments and for any consequences that result.