AUD/JPY snaps three-day downtrend to aim for 81.00 on RBA’s hawkish tilt

AUD/JPY rises for the first time in four days, up 0.40% intraday around 80.82, ahead of Tuesday’s European session. The cross-currency pair recently jumped around 40 pips after the Reserve Bank of Australia (RBA) surprised markets by keeping the September tapering on the table despite the covid woes.

The RBA left its benchmark interest rate unchanged at 0.10%, also keeping the three-year bond yield target the same, during today’s monetary policy announcement. The central bank also said, “Bond program will continue to be reviewed in light of economic conditions and the health situation.”

Read: RBA: Board will maintain flexible approach to rate of bond purchases

It should be noted that the risk appetite improves of late amid receding covid infections from Australia, not to forget the International Monetary Fund’s (IMF) historical allocation of $650 billion to its Special Drawing Rights (SDRs).

On the contrary, downbeat PMIs from the US and China, as well as recently weaker Tokyo Consumer Price Index (CPI) for July, challenge the bulls. Furthermore, fears of the US Centers for Disease Control and Prevention (CDC) terming Delta variant of the virus as “likely more severe” than earlier versions, per Reuters, as well as local lockdowns in China add to the market’s covid woes. Additionally, the surge in Japan’s covid cases keeps the AUD/JPY bulls cautious.

Against this backdrop, stock futures remain mildly bid but shares in Japan and Australia drop 0.70% and 0.30% respectively. It’s worth noting that the US 10-year Treasury yields rebound posting the lowest daily closing since February.

Looking forward, AUD/JPY traders should follow the qualitative catalysts, mainly relating to the stimulus and covid, for fresh direction as the economic calendar remains mostly empty during the rest of Tuesday.

Technical analysis

A clear break of a downward sloping trend line from June 25, surrounding 80.90, becomes necessary for the AUD/JPY prices to aim for the 200-DMA level close to 81.50. Failure to do so can redirect the quote towards July’s low, also the lowest since early February, surrounding 79.85.