AUD/JPY recedes towards 83.00 amid risk-aversion

• AUD/JPY defends 83.00, bears refuse to leave town.
• The yen remains underpinned as risk appetite wanes.
• The currency weighed heavy on multiple factors; AUD employment data eyed. 

The AUD/JPY is trading just above the 83.00 level, lacking any traction to the upside. The cross continues its ongoing bearish momentum, which began on November 02 onwards. The pair is trading at 83.09, down 0.15% on the day. 

The yen pushed higher alongside commodity currency as risk appetite waned overnight. US Treasury yields also fell across the curve, as markets digested news that dovish Fed Governor Lael Brainard has been interviewed for the Fed’s chair position. The pair’s currency ranges in the near term and looks to extend the hefty losses previously incurred.

To recap last week’s price action, the Reserve Bank of Australia’s (RBA) exit from yield curve control crashed markets through its cap on three-year bond yields. This illustrates the growing pressure on central banks to tighten monetary policy as the world economy recovers from the pandemic. But it has also exposed a serious problem causing stress to AUD/JPY with the whole yield curve control policy: unlike asset purchases, which can quickly be tapered when the economy improves, making a smooth exit from a cap on bond yields is challenging. That means the episode has important lessons for other central banks, such as the Bank of Japan (BoJ), which either use yield curve control or have considered the policy.

“Putting all the experience together it’s quite unlikely that we will have a yield target again,” said RBA governor Philip Lowe. “And it is not just because of the experience of last week,” he adds.

Looking ahead, the US CPI will be eyed, with the next relevant event in the Australian Employment data eagerly awaited on Thursday. 

Technical Levels

The AUD/JPY daily chart indicates a major resistance at 84.77, 21-day Simple Moving Average (SMA). More towards the north 86.08, November 1st high can be tested. If it breaks the one-month high of 86.08 is the last barrier to the upside is seen at 87.00. 

As for the support, the 200, 50 and 100-day SMA, with corresponding values at 82.85, 82.52 and 81.90 are the lines of defence for the pair. 

The Moving Average Convergence Divergence (MACD) has a gradual bearish bias and the Relative Strength Index (RSI) has lit the sell-out signal.

Additional levels to watch