The AUDJPY exchange rate was flat on the day despite an early rally on the resignation of long-serving Japanese Premier Shinzo Abe. The Prime Minister’s decision is not a complete shock due to recent health problems, but it still leaves a lot of questions for traders over Japan’s policy in the months ahead.
The Aussie had rallied against the Japanese Yen during the European session to highs of 78.00, but the bullish tone faded and the market now trades at 77.30. Traders will want to step back and analyse the likely successor to Abe and the probable path for the country before committing to further buying, whilst next Tuesday sees the Reserve Bank of Australia meeting to announce their latest interest rate decision.
RBA Governor Philip Lowe has already stated the current historically-low interest rate of 0.25% is as low as the bank can go. The market will, therefore, be looking for any statements from the bank regarding stimulus or the outlook for the economy. The bank has already issued a gloomy outlook this week with a warning that house prices could fall up to 40% if the unemployment rate moves to 8%, from the current 7.5% figure.
Australian bank Westpac has been more positive for 2021, with the bank pointing to China’s economic resilience and strong demand for Iron Ore, which is the Australian economy’s top commodity export. The bank also expects the country’s October budget to be “very stimulatory”.
The Aussie is setting up a bullish weekly close versus the Yen, which would signify a potential move to the 80.00 level. The problem for the pair is that Fibonacci retracement levels from the September 2017 highs have largely been covered. A move to 80.00 would complete a 61.8% recovery and that would leave either a move to 90.00 or a return to lower prices. Both directions would have a big profit potential of 1,000 pips so it is important to watch how the pair trades over the next week or two for a clearer signal on the path forward.
