Australian Dollar, RBA Analysis:
- Improved US-Russia diplomacy has markets breathing a sigh of relief for now
- RBA rate decision and Gov Lowe speech may signal early stages of an ultra-dovishness turnaround considering recent data
- AUD/JPY reprieve after bounce off well-defined zone of support
The Aussie dollar has not had a great time of late as risk-related assets softened in light of the recent US-Russia tensions over Ukraine. However, last week ended with news that talks are making slight headway and the situation now appears to be less volatile. On Monday updates on the situation are rather light and markets have seemingly incorporated the old adage of ‘no news is good news’, as the Aussie dollar lifted off a fairly robust zone of support.
AUD, like many other risk assets, may therefore experience a near-term rebound even if it is short-lived.
In addition, the Reserve Bank of Australia (RBA) announces updates on the first interest rate decision of 2022 on Tuesday, where it is almost certain that rates will remain unchanged. However, the Bank’s ultra-dovish stance of last year is starting to show cracks as inflation has breached the 2%-3% and the labor market has tightened with unemployment at the lower end of 4% (4.2%) – a level previously eyed by the Bank.
The RBA has also mentioned that actions of other central banks will be taken into consideration which naturally focuses everyone’s attention on the FOMC’s March meeting where a rate hike is highly anticipated. The Australian bond market is functioning well with 2 year yields slightly above, but mainly, in-line with the US equivalent leaving wage growth as the last remaining hurdle.
In light of these factors we may be about to hear the early stages of a change in tone of the RBA, however subtle this may be, which could support the recent bullish AUD/JPY move.
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AUD/JPY Technical Landscape
Technically, the AUD/JPY has bounced off a well-defined zone of support – the 23.6% Fib of the October to December move which coincides with a cluster of December levels of support.
The stochastic oscillator shows prices currently in oversold territory and should be watched for a return above the 20 mark. It must be noted that this is a short term setup likely to play out in 1-2 days as the longer term downtrend remains in play.
AUD/JPY Daily Chart
Source: IG, prepared by Richard Snow
The 4 hour chart helps to show the recent bullish bounce, eying 81.63 and potentially 82.07 as the nearest levels of resistance. Since this is a shorter-term trade, the first level of resistance can be observed at the open of the prior 4 hour candle with 80.55 thereafter.
AUD/JPY 4 Hour Chart
Source: IG, prepared by Richard Snow
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--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
