AUD/JPY: Recent ranges likely to break to the top side - Westpac

Sean Callow, Research Analyst at Westpac, seea AUD/JPY ranges breaking to the top side but suggests the cross should be back to 85 in Q4.

Key Quotes

“AUD/JPY has looked mostly comfortable in recent weeks, trading ranges from the high 81s to low 84s. The sharpest move was on the mid-May risk aversion flurry but the subsequent return to low equity and FX volatility has helped support this risk-sensitive pair.”

“A steady policy outlook at both the RBA and the Bank of Japan should reinforce recent ranges. While Australia’s growth pulse is rather lukewarm, official jobs data has picked up and concern over house prices argues against considering another rate cut.”

“The BoJ meanwhile will be fairly content with growth data but inflation remains too far from target to even talk about reducing bond purchases or changing the 10 year JGB yield target.”

“AUD fair value has fallen since March as iron ore prices have fallen sharply, but we don’t see much more weakness on this front, with Chinese growth looking stable near term and steel prices trending higher.”

“Indeed ultimately we see AUD/JPY ranges breaking to the top side, with plenty of upside scope on USD/JPY in H2 as the Fed proceeds with steady monetary tightening. The pair should be back to 85 in Q4.”