AUD/JPY remains supported above 81.00 amid positive market risk tone

AUD/JPY strengthened a tad on Friday amid a more upbeat tone to markets. US inflation data didn’t come in quite as high as some had feared it would, spurring a rally in US equities and commodities amid relief that the Fed wouldn’t be under quite so much pressure to rush its monetary tightening. At least, that is what some market commentators said, but the Fed will still be alarmed to see the YoY rate of Consumer Price Inflation hit 6.8%, a four-decade high, and will likely sound hawkish next week.

Anyway, it could have been worse (higher), hence the relief seen in risk assets that benefitted risk-sensitive AUD and hurt demand for safe-haven JPY. AUD/JPY thus managed to rally from earlier session lows under 81.00, but was unable to reclaim the 81.50 mark. At current levels in the 81.30s, it trades higher by about 0.3% on the day and is on course to close out the week with gains of about 3.0%, having reversed all the way higher from under 79.00.

The main driver of the upside this week, aside from the general improvement in risk tone and upside in commodities, was Tuesday’s not as dovish as expected RBA meeting, which some analysts interpreted as them opening the door to an earlier rate rise (perhaps as soon as mid-2022). In terms of the technicals, the pair broke to the north of an important recent downtrend that has been offering both support and resistance in recent weeks and then bounced off it on the retest, hence the up day on Friday. For now, AUD/JPY appears to be forming a pennant and could break higher towards its 21-day moving average just under 82.00 if risk appetite remains largely positive next week.