AUD/JPY remains one of the most reliable risk barometers - Westpac

Sean Callow, Research Analyst at Westpac, notes that the AUD/JPY printed one year highs above 87 in December as yen weakness reached a crescendo after the combination of the US election and FOMC rate hike.

Key Quotes

“Yet JPY and AUD were the two weakest G10 currencies in this phase, limiting both the upside on AUD/JPY and the subsequent pullback when the US dollar lost some yield support this month.” 

“Indeed as high beta plays on USD, AUD and JPY are likely to retain a substantial correlation (0.57 daily correlation of % changes since 8 Nov), near term, limiting the scope for range breaks.”

“Still, AUD/JPY remains one of the most reliable risk barometers. One catalyst for a break of support around 84 would be an arguably overdue correction in US equities, after steep post-election gains.”

“Monetary policy should not be a major influence on the pair for some time, with global risk appetite and trade friction the main focus. We see short term risks to the 84 area or as far as 82 in the event of substantial risk aversion. This would then provide a buying opportunity for our 87 mid-year target as underlying yen weakness lingers.”