AUD/JPY move away from monthly low set on Wednesday, climbs closer to mid-94.00s

• AUD/JPY scales higher for the second straight day and recovers further from the monthly low.
• The risk-on environment undermines the safe-haven JPY and benefits the risk-sensitive Aussie.
• Speculation for a hawkish shift by the BoJ to limit losses for the JPY and keep a lid on the cross.

The AUD/JPY cross builds on the previous day’s late recovery from the 93.25-93.20 area, or its lowest level since June 9 and gains some positive traction for the second successive day on Thursday. Spot prices climb to a two-day high, around the 94.40 region during the Asian session and now look to extend the momentum further beyond the 100-hour Simple Moving Average (SMA).

The prevalent risk-on environment – as depicted by an extended rally in the equity markets – undermines the safe-haven Japanese Yen (JPY) and turns out to be a key factor acting as a tailwind for the AUD/JPY cross. The Australian Dollar (AUD), on the other hand, draws support from the underlying bearish sentiment surrounding the US Dollar (USD), which continues to be weighed down by expectations that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle.

The AUD bulls, meanwhile, seem rather unaffected by the disappointing release of Chinese Trade Balance data, which showed that the surplus widened less than expected, $70.62 billion in June from $65.81 billion in the previous month. Additional details of the report showed that exports plunged by 12.4% as compared to the 9.5% fall anticipated. Furthermore, imports declined by 6.8% and add to worries about a slowdown in the world’s second largest economy.

The upside potential for the AUD/JPY cross, however, seems limited in the wake of speculations that the Bank of Japan (BOJ) will adjust its ultra-loose policy settings as soon as this month. The expectations pushed the yield on the benchmark 10-year Japanese Government Bond (JGB) to its highest level since April earlier this week. This, in turn, should lend some support to the JPY and contribute to keeping a lid on any meaningful appreciating move for spot prices.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent sharp corrective decline from the YTD peak touched in June has run its course and placing fresh bullish bets around the AUD/JPY cross.

Technical levels to watch