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AUD/JPY holds near the highest levels since late January 2020

AUD/JPY is trading at the highest levels since late January 2020 with risk assets firmly bid and rallying strongly again in European and US markets. At the time of writing, the cross is consolidating around 75.45, between 74.31, the session low so far, and 75.47 the high. 

A lot of the Aussie's leg work is already done in this cross and the yen is what is making for the extra gas. USD/JPY has seen a move towards the 109 level as markets re-risk in hopes of a V-shaped recovery in the global economy.

  • USD/JPY rallies to test the vicinity of 109 level, critical for market sentiment

We are seeing surprising data come out of the some of the largest and most developed economic economies, including those of nations hit the hardest by the virus in fact. Coupled with government and central bank stimulus, investors are being given the green light to chase equities higher in what could be described as a fear of missing out. 

The cross is closely linked to the performance of global indices and until there is a healthy downside correction in stocks, then the traditional playbook means there is little chance of a sizeable pullback in the near term. However, given how fragile these markets are, the house of cards could come down on any number of geopolitical factors at this juncture. Trade wars are here to stay and menace in the background. 

Commodity firmly supportive

The commodity market has also shown some robust rallies this week and the CRB index climbed again with no signs of abating. However, the gains were limited amid signs of demand remaining subdued. Iron ore futures which have contributed to the Aussies bullish of late, were steady at just below USD100/t, as investors weighed up strong shipments from Australia against constraints on Brazilian output. " The market remains concerned over supply disruptions in Brazil.," analysts at ANZ Bank explained.

An outbreak of COVID-19 cases in the country is also threatening to curtail operations even further. Strong demand from China also continues to support sentiment. China’s steel industry PMI rose to 50.9 in April, the first time in the expansionary territory since mid-2019.

While we have seen some promising bounce back numbers in economic data, the analysts at ANZ pointed out that the GDP declined 0.3% q/q in Q1, with a sharp fall in private sector demand the key driver and warn of further contracts to come. 

We expect Q2 GDP to fall sharply, a second consecutive fall which would meet the technical definition of a recession – Australia’s first since the early-1990s. The recovery is unlikely to be V-shaped and further stimulus will likely be required to support growth over the next year or so.

AUD/JPY levels

 

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