The Aussie dollar has been on its back foot in Monday trading, as the carry trade continues to suffer. That being said, in the longer-term, this is a market that will eventually look to the rate differential, but in the moment, it’s a bit bearish still.
AUD/JPY
The Aussie dollar has fallen against the Japanese yen during the day, where, quite frankly, the Japanese yen has been the story. They continue to price in the idea of a Bank of Japan rate hike out there, and that has the carry trade unwinding.
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What I find ironic about this is, given enough time, this very well could change because the interest rate differential is still going to be very wide. So I do think that this is somewhat limited at the moment.
The pair has dropped pretty significantly over the last couple of days, and the question now is whether the hawkish RBA in Australia will overwhelm the somewhat hawkish BOJ in Japan. I do think that's the story eventually.
Right now, though, we have to look for significant support
Right now, though, we have to look for significant support. It has broken pretty significant short-term support at about 112 yen. I still believe that the 200-day EMA at 110 yen will be major support.
Any rally above 114 yen would suggest a major shift in the attitude, but right now we're light years from that.
I anticipate that between now and the Bank of Japan interest rate decision, there are a lot of people out there covering their bets, and therefore we may continue to see either yen strength or stickiness in these pairs, as it were, for yen positivity.
At the end of the day, though, you do get paid to hang on to this at each rollover, and eventually that becomes a thing again. Until then, cautious trading is on the docket for me.
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