AUDJPY hits a key support zone ahead of important Chinese data

It’s been a bad start to the week for the Australian dollar, with the commodity currency facing heaving selling pressure overnight that pushed it through 0.8900 against the US dollar (see my colleague Matt Weller’s report on AUDUSD). While the sell-off in AUDJPY was less extreme due to some mild yen strength, the pair has been brought to a key support zone (see chart).

As we can see from the chart below, the support zone that price has run into was formerly a resistance level. This resistance, turned support zone around 96.00 is a good indication of where momentum is pushing the pair. A break of this support zone could highlight some underlying technical weakness in price. There are already some technical indicators which are looking increasingly bearish.

Nonetheless, as long as price remains above this level there may be hope for the pair. In saying that, we expect that any long-term gains for this pair may have to come more from yen weakness, than aussie strength. The fundamental picture for the Australian dollar is still fairly weak; falling commodity prices, fears about China’s economy and a lack of key growth drivers in Australia are all weighing on its outlook. Meanwhile, the prospect of looser monetary policy in Japan – which will be increased if the government pushes ahead with plans to increase the sales tax to 10% - has the potential to keep the yen on the back foot.

Eyes on China’s PMI data

In the immediate future, the market is keeping a close eye on a private sector reading of Chinese manufacturing PMI. HSBC releases its flash print for September at 0145GMT today. The market is looking for a reading of around 50.0, which is the level that separates optimists and pessimists (prior 50.2). A number below 50 could weigh on the commodity backed Australian dollar, while a strong print may temporarily reinvigorate some AUD bulls.

Source: FOREX.com