AUDJPY is testing an important resistance zone around its 200-day SMA. The recent demise of the pair has been led by significant yen weakness across the board as USDJPY surrenders some of its recent gains. Given the massive success of this pair of late, it was likely inevitable that we were going to see some, at the very least, consolidation trading.
From a fundamental perspective, the yen weakness is being perpetrated by unease in Tokyo regarding the negative impact a weaker yen is having non-manufacturers and small companies. It wasn’t long ago Tokyo was cheering the demise of JPY as the weaker it got, the more attractive Japanese exports looked. Now, however, the rest of the economy is being adversely affected by the yen’s stellar demise this year, thus Japanese officials are becoming more vocal about the negative impact the softer yen is having on the economy. Given that a significant amount of this weakness was sparked by the BoJ’s massive easing cycle, some officials have been activity expressing concern about what effect QQE is having on the yen, thus the notion of further stimulus from the BoJ is becoming more unlikely. In saying that, the bank may not have a choice if the economy doesn’t shift up a gear.
Meanwhile, the Australian dollar has been on the back foot due to widespread USD strength and the lacklustre performance of the Australian economy. The idea that the Fed may begin raising rates before the RBA is weighing heavily on this pair. While the US economy continues to go from strength to strength, the Australian economy is facing a prolonged period of below trend growth as non-mining sectors of the economy struggle to pick up the slack being left behind by diminishing mining investment.
Overall, the path of least resistance seems to be lower for AUDJPY at the moment, both from a fundamental and a technical perspective. On the later point, a break of the aforementioned support zone around its 200-day SMA (see chart) would confirm our bearish technical bias.
AUDJPY – daily
Source: FOREX.com
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