AUD/JPY: Strong tailwinds - Westpac

Sean Callow, Research Analyst at Westpac explains that AUD/JPY has enjoyed some strong tailwinds since June, taking it to highs dating to Dec 2015.

Key Quotes

“Australia’s key commodity prices have recovered some of Q2’s steep declines, the US dollar has been broadly under pressure from fading growth expectations and thus cooling expectations for Fed tightening and global risk appetite has been upbeat.”

“We doubt the next few weeks will be so supportive for the pair. As a high beta US dollar play, AUD/USD risks underperforming on even moderate dollar bounces, with potential catalysts near term such as upside surprises on US economic data, given the fall in market expectations.”

“Speculative positioning on AUD/USD is also very long by historical standards, leaving AUD crosses vulnerable. A sustained break of AUD/JPY 88 could extend to 85.50/86.00 multi-week if the US dollar does claw back at least some lost ground against major currencies.”