With the Reserve Bank of Australia (RBA) and Bank of Japan (BoJ) interest rate decisions out of the way, AUD/JPY may continue to track changes in risk sentiment as both central banks stick to a hands off approach for monetary policy. The recent recovery in AUD/JPY has largely been accompanied by a pickup in global benchmark equity indices, and market participants may further utilize the Yen as a funding currency as Governor Haruhiko Kuroda appears to be in no rush to deviate from the Qualitative/Quantitative Easing (QQE) Program with Yield-Curve Control.
Keep in mind the seasonal bias favors a bearish outlook for the Australian dollar, with AUD/USD depreciating 75% of the time during the month of May over the past 20-years. The tendency for the Japanese Yen is more mixed, with USD/JPY splitting time equally between gains and losses over the same period. In turn, the seasonal bias may tame the near-term advance in AUD/JPY especially as equity traders start to look at the ‘sell in May and go away’ strategy.
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AUD/JPY Daily
Nevertheless, failure to break below the 81.60 (61.8% expansion) support zone keeps the broader outlook tilted to the topside especially as AUD/JPY preserves the upward trend carried over from the previous year. Moreover, the RSI appears to be highlighting a near-term trigger as it clears the bearish formation from December, and the pair may extend the upward trending channel from the April low (81.49) as long as risk sentiment stays afloat. With that said, the next topside hurdle around 84.60 (100% expansion) to 85.00 (100% expansion) followed by 85.60 (61.8% retracement).
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--- Written by David Song, Currency Analyst
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