AUD/JPY: The Beat Goes On?

North American markets are relatively benign this morning as investors gear up for the fireworks of central bank meetings and employment releases later in the week and as a result, risk markets are edging higher. In some cases, like the S&P 500, all-time highs are being reached while the Dow is merely a surge away from its zenith. For the most part, major currencies are tending their own gardens with EUR/USD and USD/JPY up overall, and AUD/USD, NZD/USD, USD/CAD, and GBP/USD down.

Economic releases this morning have done little to spark motivation with both ISM and Markit Manufacturing PMI’s slightly missing forecasts, but on the bright side, IBD/TIPP Economic Optimism rose to its highest level since June of last year. At least according to the US consumer, a better day lies ahead, and gives credence to the theory that some of the economic misses over the last couple months really are weather related.

In other news around the world, Japan’s new 3% sales tax increase went in to effect today, China had another corporate bond default, and the Reserve Bank of Australia didn’t try to jawbone the AUD down too much. The combination of the RBA’s hands-offishness, the new tax implications in Japan, and the market’s penchant for risk at the moment could potentially bode well for the AUD/JPY. Having risen consistently for the last couple weeks from around 92.00 to 96.00, the AUD/JPY is no stranger to positive flows and consistent trends. If the current trend continues, the 96.00 level could just be a pit stop on the way to higher levels as the fundamental drivers of the rise continue to factor positively.

However, as with all trends that develop, they have to end sometime, and a break of this trend could usher in a wicked pullback which might coincide with a drop in the USD/JPY, brilliantly mapped out by my colleague Matt Weller earlier today.