AUD/JPY enjoys decent intra-day bounce on US’s soft sanction response, though remains capped under 83.00

• A recovery in sentiment after the US’s soft sanction response to Russia’s Ukraine invasion helped AUD/JPY recover from intra-day lows.
• The pair is back to trading in the 82.80 area, more than 1.0% up from earlier lows near 82.00.
• Given tensions remain high and markets on edge, the 83.00 area may continue to be viewed as a near-term ceiling.

As sentiment in US equity markets recovered in the aftermath of US President Joe Biden’s announcement of fresh sanctions against Russia for its invasion of Ukraine, AUD/JPY received significant tailwinds. Though the pair has failed to get back above the 83.00 level, at current levels in the 82.80s, it still trades about 1.0% higher versus earlier intra-day lows in near 82.00. That still leaves it down about 0.4% down on the session, but nonetheless marks an impressive intra-day recovery.

Risk appetite took a turn for the better following Biden’s Russia sanction announcements as the US President confirmed that Russia’s energy sector would not be targeted given European dependence on Russian energy imports. Some have pointed out that ahead of the November 2022 mid-term elections, the Biden administration has a strong aversion to anything that might pump global energy-driven inflationary pressures even further.

The soft sanctions helped ease demand for safe-havens such as the yen and helped spur inflows into more risk-sensitive currencies such as the Aussie, facilitating AUD/JPY’s intra-day rebound. But the war in Ukraine is set to intensify in the coming days with Russia still a long way from achieving its goals (which the US thinks entails the “decapitation” of the Ukrainian government).

The US and EU have said that everything is still on the table regarding Russia sanctions. If things start to get really gnarly in Ukraine, public pressure on the US and EU to “do more” to deter Russian aggression could grow. In other words, Russian energy exports remain in the firing line and Russia may yet see itself kicked off of SWIFT. For this reason, the chances for risk appetite to stage a more lasting rebound remains slim and rallies towards 83.00 in AUD/JPY may continue to be viewed as good sell opportunities.