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The latest test of the 88.02 level in AUDJPY has seen the pair turning sharply higher with price now up almost 5% from the initial 2023 lows. The main driver behind the move has been the better risk sentiment we’ve seen on the back of recent US data and China reopening. Softer US wage growth last month has raised hopes for further cooling of inflation, to be shown in tomorrow’s US CPI report. With equities and commodities rallying across the board, AUD has been well supported while JPY has seen weaker demand due to reduced safe-haven inflows.

At the same time, news of China relaxing border controls there for the first time since the pandemic began is also helping lift sentiment. Despite near-term uncertainty regarding fresh covid fears, the reopening is expected to filter into higher demand and better activity in the coming months, which is good news for the Australian economy.

More recently, data overnight showed a fresh surge in domestic AUD inflation which hit 7.3% from 6.9% prior. With renewed risks of an uptick in RBA tightening, AUD looks set to gain against JPY where BOJ easing remains firmly in place. Looking ahead then, tomorrow’s US CPI print will be key. Confirmation of further cooling, especially if we see a downside surprise, should send AUD higher on better risk sentiment. However, if we see any unexpected uptick in US CPI, expect risk sentiment to reverse sharply, taking AUDJPY lower.
 

Technical Views

AUDJPY

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The 88.02 level has once again held as support, turning price higher. The pair is now testing the bearish trend line from 2022 highs ahead of the key area at 92.66 (retest of broken bull channel lows). This is the pivot for the pair, above there and 95.67 is the focus. Failure there, and current lows will likely be seen again.

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