AUD/JPY May Rally With Stocks in Asia, Australian GDP in Focus

Australian Dollar, Japanese Yen, Australia GDP, AUD/JPY Outlook, RBA – TALKING POINTS

• Australian Dollar may rally with APAC stocks in Asia amid market-wide buoyancy
• Optimism could also help support emerging market peers and alleviate credit risks
• Australian GDP data on deck following the RBA rate decision: how will AUD react?

Equities ended another day on a happy note with the Dow Jones, S&P 500 and Nasdaq indices closing 1.05, 0.82 and 0.59 percent higher, respectively. The buoyancy was reflected in FX and commodity markets with AUD and NZD having surged in some cases over one percent with WTI clocking in 4.03 percent gains. The anti-risk Japanese Yen was hammered along with the haven-linked US Dollar and Treasury bonds.

Market participants shrugged at unrest in the US, where struggling economic activity amid the Covid-19 pandemic has been hampered further by state-enforced curfews responding to looting and vandalism. This is against the backdrop of protests and riots following the killing of George Floyd by a police officer in Minneapolis.

Traders may be operating on the market-friendly narrative that easing lockdown measures will lead to a speedy recovery despite Depression-era high unemployment. This in turn is helping to push cycle-sensitive assets higher.

Wednesday’s Asia-Pacific Trading Session

Wall Street’s rosy session may ring into Asia and help support APAC stocks and growth-oriented currencies like the Australian and New Zealand Dollars. Higher-beta FX – particularly those tied to emerging market economies – may benefit from resilient risk appetite. Credit markets may continue to show signs of easing as spreads on credit default swaps on sovereign bond yields in Asia – apart from a few – continue to narrow.

With another relatively-light data docket, the primary focus will likely be another Australian-based event, only this time instead of the RBA – like yesterday – today will focus on Q1 GDP statistics. The commodity-exporter country has managed to avoid a recession for almost 30 years – even dodging one in 2008. However, the current geopolitical and economic terrain may now be too rough to traverse unscathed.

AUD/JPY Technical Analysis

In the past 24 hours, AUD/JPY has surged 2.30 percent, adding onto its remarkable 20 percent recovery after bottoming out at 62.41. The pair continues to climb above a steep uptrend and is coming close to retesting a multi-month resistance range between 75.925 and 76.320 where the pair had previously stalled. Cracking that ceiling opens the door to testing the lower tier of the 77.736-79.843 range.

AUD/JPY – Daily Chart

AUD/JPY chart created using TradingView

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri Twitter