AUD Sensitive as Stocks and Crypto Rout Favor Yen

Australian dollar, AUD/JPY analysis

  • Japanese Yen Gets Bid as Selling Cryptos and Stocks Riskier
  • Global growth downgrades (mainly in China) have important implications for the AUD
  • Main technical levels AUD/JPY

Yen bid as stocks sell

The Japanese yen is experiencing a momentary rally as risk sentiment aligned with equities and cryptocurrencies takes a hit. The recent alt-coin rout of Tether unpecking spilled over into the stablecoin market as bitcoin and Ethereum lost sympathy. The Bank of Japan (BoJ) remains resolute on its accommodative monetary policy, although warnings of accelerating inflation and deteriorating household incomes are expected to challenge BoJ officials in the months ahead.

The Australian dollar, on the other hand, fell massively from the highs reached in April, as the macroeconomic landscape shifts away from strong global demand and strong demand for commodities from China in particular. The AUD continues to depreciate despite hawkish messages from Reserve Bank Governor Lowe that more rate hikes are coming after the 25 basis point hike in early May.

AUD/JPY Key Technical Levels

Whenever markets move from one environment to another, it’s best to zoom out and identify key support and resistance early on. The Australian dollar has been the darling currency of the global recovery as commodity prices climbed alongside global demand (largely from China).

This landscape has changed dramatically as Australia’s main trading partner, China, reintroduced lockdowns in major cities in a bid to facilitate its zero covid policy. An undesirable byproduct of lockdowns is reduced economic activity, which also exacerbates existing supply chain shortages and shipping delays.

The monthly chart shows 3 monthly candlesticks vaguely resembling a evening Star candlestick pattern, although it is difficult to make a strong case for this as the extended upper wick complicates matters. Nevertheless, the message is always the same: the markets tried to push higher but ultimately failed to hold and fell much lower. Since then, the pair has fallen significantly, warranting a closer look at the daily chart.

AUD/JPY monthly chart

Source: Trading View, prepared by Richard Snow

The daily chart is showing a significant decline during today’s trading session, breaking through the 90.50 resistance level. A lower close today would mark 6 successive trading sessions of losses, hinting that the current leg of the bearish move could be due to a minor retracement in the upcoming sessions. The RSI is approaching oversold territory, supporting the possibility of a rally towards the 90.50 area – this time as resistance.

Bears might consider a bounce lower from the 90.50 level for bearish continuation plays as fundamentals appear to support a bearish move in AUD/JPY. Support comes in at 85.30, which is admittedly far from the current price. Resistance at 90.50 remains the test for future higher levels in the pair.

AUD/JPY daily chart

AUD/JPY Price Outlook: AUD Sensitive as Stocks and Crypto Rout Favor Yen

Source: Trading View, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnotowFX

Leave a Comment

%d bloggers like this: