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AUD/JPY in Play
AUD/JPY in Play
AUD/JPY is in play tonight with the Reserve Bank of Australia monetary policy meeting and Japanese Prime Minister Abe’s fiscal stimulus announcement on the docket. We’re not sure which will come first since there’s no set time for Abe’s announcement. The majority of economists surveyed expect the RBA to cut interest rates by 25bp but we feel that a rate cut is not a done deal. The last time we heard from the RBA they sounded open to the idea of easing if data supports it but since the last meeting in July, manufacturing activity accelerated, consumer prices increased, full time job growth rebounded, business confidence improved and the participation rate is up as shown in the table below. Granted consumer confidence is down and the unemployment rate ticked up, we’re not sure if this is enough for the RBA to pull the trigger on easing in August especially after today’s stronger than expected PMI manufacturing report. At the same time, Prime Minister Abe could disappoint. If his fiscal stimulus package is greater than 28 trillion yen or the supplementary budget receives significant allocation the yen will fall and the Nikkei will rise. However widespread reports have indicated that real spending will be a quarter of the headline number with a fraction allocated to the supplemental budget. After the big disappointment from the Bank of Japan last week investors have become extremely skeptical of the government’s ability and will to bolster the economy. If Abe disappoints, we cannot only expect USD/JPY to make a run for 100 but AUD/JPY to fall as well. Between these event risks, the greater market mover should be Japan.
On a technical basis, AUD/JPY looks terrible. Having broken below the 20 and 50-day SMA, the next stop for AUD/JPY appears to be 75.25, the 38.2% Fibonacci retracement of the 2007 to 2008 decline. There’s some support at 77 cents but once that is broken, look out below! However if the RBA holds and Abe surprises in a very big way, a break above 78.50 would completely alter the technical picture and set the stage for a stronger AUD/JPY rally.