The Australian dollar is testing short-term resistance against the Japanese yen, as we wait for Aussie CPI and the Bank of Japan over the next few days.
AUD/JPY
The Aussie dollar has rallied a bit during the trading session here on Tuesday to test the 50-day EMA. I'm very interested in this area because you do get a little bit of a boost from the Australian dollar as far as interest rates are concerned.
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The interest rate differential favors Australia
If we can break above the 50-day EMA and the ¥111.20 area, then it could lead to further chasing of gains. The interest rate differential favors Australia, although Australia is starting to show some signs of financial stress and weakness.
But at the end of the day, the Bank of Japan has basically a deficit when it comes to interest rates that most currencies can benefit from. Japan has 1.25%. That's pretty low. It's not Swiss-type numbers, but it is still pretty low.
The Bank of Japan does have a meeting Friday morning, but is not expected to change anything. If that's going to be the case, then it makes a lot of sense that this pair will start to focus on the interest rate differential as well, especially if the Japanese sound a little dovish.
Ultimately, this is also a way to play China, as the Australian economy is so heavily influenced by the Chinese economy. Ultimately, I like the idea of buying short-term pullbacks. I've got no interest in shorting this, and I do think that somewhere right around ¥109, you have a pretty significant support level as well.
So I'm bullish. I recognize it might be a little bit noisy, but you do get paid to hang on to this pair. So I like it, maybe for a move towards ¥113. If we're a little bit lucky, maybe ¥115.
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