0.63 0.67%
    0.91 -0.26%
    1.34 -0.6%
    144.37 0.26%
    0.88 -0.16%
    1.09 0.55%
    1.24 0.71%
    0.68 1.51%
    132.42 -0.28%

AUD/JPY dips amid JPY strength, awaits Fed this week for direction

The Aussie remained under pressure today as JPY fundamentals supported the Yen.

The Australian dollar declined on Monday, undermined by the strengthening Japanese yen. However, this week’s primary focus will be the FOMC monetary policy decision due Wednesday.

Chinese reopening brings hope

The markets speculated that the country’s economy would benefit from the absence of COVID restrictions during its first Lunar New Year break in three years. Last week, state media stated that domestic travel and consumption had rebounded significantly. The Chinese government reaffirmed over the weekend that it intends to boost spending and stimulate domestic demand.

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Given Australia’s reliance on China as a trade partner, a recovery in the Chinese economy bodes well for the region’s other markets. However, the timeline of such a recovery is questionable, considering that the nation is simultaneously dealing with its deadliest COVID-19 epidemic. This week, investors anticipate Chinese business activity statistics to determine how much the economy benefited from the reduction of anti-COVID measures.

Japan’s monetary policy under scrutiny

Elsewhere, Reuters reported on Monday that a panel of academics and business executives urged the Bank of Japan to make its 2% inflation target a long-term objective, rather than one that must be met immediately, in light of the rising cost of prolonged monetary easing.

The Japanese yen strengthened notably after the report, with the AUD/JPY cross falling circa 60 pips.

The news also said that the suggestion includes the necessity for interest rates to rise in accordance with economic fundamentals and for Japan’s bond market to operate normally. Notable members of the group include Yuri Okina, who, according to Reuters, is among the nominees to become the next BoJ deputy governor.

Fed meets this week

From other news, volatility will surely come after this week’s Fed monetary policy decision. Investors forecast that the Fed will raise the fed funds rate range by only 0.25% to a maximum of 4.75%. Moreover, interest rate futures indicate that the Fed will cut rates by 0.4% by the end of the year, which goes against most of the Fed’s latest guidance, which has focused on keeping the fed funds rate above 5% for a more extended period.

Technically speaking, the cross remains anchored above previous highs of 91.80, and as long as the Aussie trades above that level, the short-term outlook seems bullish.

On the downside, another support is seen at the 21-day moving average (the red line) near 91. The critical resistance is at the 200-day moving average (the blue line) at 93.

AUD/JPY daily chart

AUD/JPY daily chart, source: author´s analysis,

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