The AUD/JPY cross is on an upward trajectory, with a bullish sentiment prevailing above the 100-day SMA. This movement is largely influenced by Japan's recent GDP data, which fell short of expectations, causing the Japanese Yen to weaken against the Australian Dollar. The second quarter GDP expansion of 1.1% annualized was below market consensus and the previous quarter's growth.
A Mixed Bag of Details
Capital Economics analysts describe the GDP details as a "mixed bag." While GDP expanded at a decent pace in Q2, the government's fiscal policies seem to be having an impact, as indicated by a jump in government consumption. This suggests that the expansionary measures are starting to show results.
Upcoming Economic Indicators
Traders are now awaiting key economic data releases from both Australia and Japan. The Australian employment report for July is expected on Thursday, and if it shows stronger-than-expected results, it could further boost the Aussie against the Yen. On the other hand, Japan's National Consumer Price Index (CPI) inflation data, due on Friday, is also a crucial indicator.
Deutsche Bank's Take
Economists at Deutsche Bank highlight a busy week for Japan, with key economic data releases. Their Chief Japan Economist forecasts real GDP growth of +1.6% QoQ for Q2 and expects core CPI ex. fresh food to rise to 1.8% YoY from 1.6% in June. This indicates a potential increase in inflationary pressures.
Technical Analysis
From a technical perspective, AUD/JPY maintains a mildly positive momentum in the near term. The currency pair holds above the Bollinger middle band and the 100-day simple moving average, suggesting a constructive bullish bias. The 14-day Relative Strength Index around 54 supports this positive tone.
Support and Resistance Levels
On the downside, initial support is found at the July 8 low of 112.21, followed by the August 10 low of 111.63. If selling accelerates, the lower Bollinger band near 110.00 could act as a deeper bearish target. Conversely, on the upside, immediate resistance is located at the July 16 high of 113.88, with further resistance at the July 27 high of 114.67. A clear break above this level could open the door to the upper Bollinger band at 115.35.
The Japanese Yen's Role
The Japanese Yen is a significant player in this currency pair's movement. Its value is influenced by various factors, including the performance of the Japanese economy, the Bank of Japan's policies, the differential between Japanese and US bond yields, and risk sentiment among traders. The Bank of Japan's mandate includes currency control, and its moves can significantly impact the Yen's value.
Historical Perspective
Over the last decade, the Bank of Japan's ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence with other central banks, particularly the US Federal Reserve. However, the gradual unwinding of this ultra-loose policy has provided some support to the Yen in recent times.
Safe-Haven Status
The Japanese Yen is often considered a safe-haven investment, meaning it attracts investors during times of market stress due to its perceived reliability and stability. This safe-haven status can strengthen the Yen's value against other currencies seen as more risky.
Conclusion
In conclusion, the AUD/JPY cross's movement is intricately tied to Japan's economic performance and the Bank of Japan's policies. The recent GDP data and upcoming economic indicators will continue to shape the currency pair's trajectory. From a technical perspective, the pair maintains a positive momentum, with key support and resistance levels to watch. The Japanese Yen's safe-haven status and its relationship with other central banks' policies add another layer of complexity to this currency pair's dynamics.
