Sean Callow, Research Analyst at Westpac, points out that the AUD/JPY cross ratcheted lower in early September, but the pair has recovered well in recent weeks, with the yen showing relatively low sensitivity to equity turbulence and AUD finding support from positive domestic data and resilient commodity prices.
Key Quotes
“The yen’s somewhat muted safe haven status leaves attention firmly on yield differentials, which will continue to work against both AUD and JPY versus the US dollar in coming weeks.”
“Japanese inflation is 1%yr versus the Bank of Japan’s 2% target and only 0.4% ex-food and energy, leaving the BoJ to keep pursuing its very loose monetary policy well into 2019. With the yield curve anchored from overnight to 10 years, this should encourage further robust Japanese demand for foreign bonds.”
“The RBA’s optimism over Australia’s growth prospect helps AUD’s cause but yield spreads will also chip away at AUD/USD. Overall, we see scope for AUD/JPY to push above 83, perhaps as far as 84 multi-week.”
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