AUD/JPY May Struggle to Breach and Sustain Movement Above 79.055

2019-02-12 06:00:00 Dimitri Zabelin, Analyst

AUD/JPY TALKING POINTS – RBA, GLOBAL GROWTH, TRADE WARS

AUD/JPY aiming for 78.691?
Global risks to weigh on AUD
Dovish RBA pushes Aussie down

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AUD/JPY FUNDAMENTAL ANALYSIS

AUD/JPY has been trading between 77.735-78.217 since the RBA announced it will maintain the benchmark rate at 1.50, just a few hours before Governor Philip Lowe delivered a speech in Sydney. Domestic and international risks shifted the central bank’s outlook to now having a more balanced approach. The following is an excerpt from the Governor’s speech:

‘Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced’.

Forecasts for economic growth in 2019 and 2020 were revised down with the central bank keeping a close eye on falling house prices and rising household debt. The Australian Dollar responded accordingly and fell through several resistance levels and is now attempting to re-enter its previous trading range.

AUD/JPY – Daily Chart

This comes as economic news flow out of Australia has been underperforming relative to economists’ expectations since early December according to the Citi Economic Surprise Index. Forecasts of slower global growth, uncertainty over trade wars and weakness in China, combined with greater political economy risks in Europe may continue to weigh on major economic indicators as international risk appetite fades.

All of these factors will likely cool RBA rate hike expectations and pressure the central bank to maintain a monetary policy conducive for countering a downturn in the business cycle. Looking ahead, this week there are not many market-moving data releases coming out of Australia or China. The following week, however, has a little more in store, particularly on Thursday:

AUD/JPY TECHNICAL ANALYSIS

AUD/JPY for the time being has been trading between 77.735-78.217 but is struggling to make it past the upper bound. The pair might flirt with 78.691, but in order to gain sufficient momentum to reach past 79.055, key economic indicators have to outperform forecasts by a significant margin. The recent trend in data suggests that such an outcome does not look very likely.

AUD/JPY – 1-Hour Chart

It also important to remember, that if the pair manage to break above 79.055, while encouraging for Aussie bulls, it is important to look at the bigger picture. Since January 2018, the Australian Dollar has fallen 12 percent against the Japanese Yen. It is unlikely that in the near future the fundamental outlook will shift so dramatically that it will reverse the broad downward trajectory.

AUD/JPY – Daily Chart