The Australian Dollar (AUD) soared against the Japanese Yen (JPY) throughout Tuesday’s European trading session. It was last 0.3% up on the day, at roughly 106.46. This rise is due to the JPY materially underperforming in the face of continued angst over Japan’s baroque political system. As investors navigate through uncertainty, the AUD/JPY pair’s ascent reflects broader economic dynamics, including Australia’s trade relationships and inflationary pressures.
Technical analysts have recently highlighted the accelerated move in the AUD/JPY cross. They argue that this increase is going only on local factors, but from global economic conditions, particularly those associated with China—Australia’s largest trading partner. The ongoing dynamics between these economies are highly important in terms of continually affecting currency valuations.
Rising Momentum and Technical Indicators
The recent movement in the AUD/JPY pair has pushed the 14-week Relative Strength Index (RSI) to 79.39, indicating overbought conditions. This technical indicator suggests that momentum is stretched, setting the stage for potential consolidation in the near term. Many analysts and traders are bullish on the AUD/JPY currency pair. They expect it to remain bullish as long as it maintains above the upward sloping 10-week Exponential Moving Average (EMA), currently at 103.85.
At this critical moment in our recovery, the support made available by this EMA is instrumental in ensuring that the long-term economic growth of the pair continues. Long investors and shorts alike are paying very close attention to these key technical indicators to predict coming price corrections or advances. As the market continues to digest these signals, traders will be keeping their eyes peeled for clues that would confirm a reversal of trend or a continuation of strength.
Impact of Economic Relationships
The Australian Dollar’s value is deeply influenced by Iron Ore, its top export commodity. Further, the overall health of the Chinese economy looms large over this influence. As China emerges from economic fluctuations, any surprises—positive or negative—in Chinese growth data can directly impact the AUD and its associated currency pairs, including AUD/JPY. As such, Iron Ore price volatility and China’s economic situation is a critical consideration for traders looking to profit on this currency pair.
External forces play a strong hand in determining the terrain for the AUD. Domestic considerations such as inflationary pressures and Australia’s current account balance further complicate matters. A rise in inflation could bolster expectations for interest rate increases, potentially benefiting the Australian Dollar in the long run.
Japanese Yen Under Pressure
At the same time, the Japanese Yen comes under increasing pressure as the political crisis in Japan continues. The Yen was just announced as the weakest currency denominated against the British Pound. This episode exemplifies the pressures Japan’s currency is under as political narratives continue to change. Fears over government fiscal stimulus can be just as market-moving. This would help strengthen the Japanese stock market but further weaken the Yen.
On the hand, if big spending plans are introduced, they might undermine the Bank of Japan’s (BoJ) current monetary tightening strategy. This possible change in direction has investors asking if JPY will remain a stable currency and a safe-haven currency of choice.