AUD/JPY: Dominant global focus on the US interest rate outlook should continue to limit the ranges - Westpac

Sean Callow, Research Analyst at Westpac, explains that the dominant global focus on the US interest rate outlook should continue to limit the ranges on AUD/JPY in coming weeks – at least assuming no sharp deterioration in risk appetite.

Key Quotes

“Both AUD and JPY are sensitive to the change in outlook for the Fed funds rate, though JPY somewhat more so.”

“Monetary policy settings should remain firmly on hold at both the RBA and BoJ near term, even if the pace of Japan’s money base expansion softens further – the commitment to 0% on the 10 year JGB is intact.”

“But we look for a mild extension of this year’s AUD/JPY gains multi-week. Australia’s commodity price support should remain solid for now given supply constraints on coal and iron ore.”

“We also have an underlying preference to buy dips on USD/JPY, despite the range-trading of the past month or so. Spec long USD/JPY positioning has been pared back and a Fed rate hike next week should be accompanied by commentary to encourage pricing for 2 more hikes this year – even if not ultimately delivered.”

“AUD/JPY dips should not reach the 100dma around 84.46, en route to renewed probes of the 88-89 area multiweek.”