AUD/JPY struggled to hold its ground during the start of Japan’s 2017 fiscal year, with the pair failing to preserve the December range, and the recent rebound in the exchange rate may continue to unravel over the days ahead as the Reserve Bank of Australia (RBA) appear to be in no rush to move away from its easing-cycle.
With Australia’s 1Q Consumer Price Index (CPI) missing market expectations, the RBA may attempt to buy more time at the May 2 meeting and show a greater willingness to keep the official cash rate at the record-low throughout 2017 as ‘wage growth and broader measures of labour cost pressures remained subdued.’ In turn, more of the same from Governor Philip Lowe and Co. may dampen the appeal of the Australian dollar as it drag on interest-rate expectations.
The hands off approach by both the RBA and the Bank of Japan (BoJ) keeps AUD/JPY vulnerable to shifts in market sentiment, and risk trends may play an increased role in influencing the exchange rate especially as Governor Haruhiko Kuroda keeps the door open to further support the Japanese economy.
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With that said, AUD/JPY sits at a key juncture ahead of the RBA meeting at it struggles to push back above the former-support zone around 83.70 (61.8% retracement) to 84.00 (38.2% retracement), while the RSI comes up against trendline resistance. The lack of momentum to clear the topside hurdles may produce range-bound conditions during the first full-week of May as the 81.60 (61.8% expansion) region provides near-term support. Nevertheless, but a pickup in risk appetite may prop up the pair in the week ahead as market participants treat the Japanese Yen as a funding-currency.
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--- Written by David Song, Currency Analyst
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