AUD/JPY slumps under 83.00 level, heading for worst one-day performance in a month

• AUD/JPY dropped 1.0% to back under the 83.00 level on Monday despite as safe-haven currencies like the yen outperformed.
• The more defensive FX market bias contradicted the risk-on mood in global equity and bond markets.
• Support at key moving averages around 82.70 and in the 82.50 zone may be seen as a near-term buy opportunity.

Despite gains in strongly risk-on market conditions in global equity, bond and commodity markets, risk-sensitive currencies in the G10 suffered on the first trading day of 2022, whilst the safe-haven US dollar and yen benefitted. Given AUD’s status as one of the more risk-sensitive G10 currencies, AUD/JPY had a rough time on Monday, pulling back sharply from the six-week highs it printed during Asia Pacific trade in the 0.8380s to nearly 100 pips lower in the 82.90 area. At current levels underneath 83.00, the pair is trading lower by about 1.0% on the day, the worst one-day performance in one month.

As it gradually advanced in the 83.00s over the course of last week and early on Monday’s session, AUD/JPY had been testing an uptrend that has been capping the price action since early December. Failure to break above this uptrend ultimately seems to have been taken as a bearish signal by technicians, who have on Monday forced the pair back towards its 50 and 200-day moving averages, both of which sit around 82.70. A break below here would bring in focus a test of the key 82.50 level, which acted as strong resistance and then support in December.

The mismatch between FX (which has been more risk-off) and equities, bonds and commodities (where conditions have been more risk-on) provoked some head-scratching on Monday. Should US equities and bond markets continue to price in a more positive 2022 outlook in the coming days, it's hard to see how this could result in further AUD/JPY weakness. Bulls may well view the pair at current levels as a good short-term buy-the-dip opportunity, especially if the pair drops further to 82.50. But bulls will be wary of concerns about the Omicron outbreak in Australia, which has really been accelerating and could explain why the pair faired worse than its NZD and CAD peers on Monday.