AUD/JPY rally goes into overdrive, pair surges above 90.00 as surge in global stocks/yields continues

• Despite looking extremely overbought across a range of short-term technical measures, AUD/JPY’s historic move higher went into overdrive on Tuesday.
• The pair lept 2.0% to fresh multi-year highs above 90.00 and is eyeing its 2017 highs at 90.30.
• The recent surge higher in stocks and global yields has battered the yen across the board, not just versus AUD.

Despite now looking extremely overbought across a range of short-term technical and quantitative measures, AUD/JPY’s historic move higher went into overdrive on Tuesday. At current levels just to the north of the psychologically important 90.00 mark, AUD/JPY is trading at four and a half year highs with gains of about 2.0% on the day, putting it on course for its best one-day performance since November 2020. That was the day the successful Pfizer Covid-19 vaccine trial data was announced.

AUD/JPY now trades a massive more than 6.5% above its lows from just one week ago in the 84.50 area and its on-the-month gains stand at roughly 8.0%. That means, with seven full trading session of the month left, the pair is on course to post its largest percentage one-month gain since October 2011, more than a decade ago. A continued improvement in risk appetite in global equities coupled with a historic run higher in US and global bond yields as the Fed pivots hawkishly has had disastrous effects for the yen, which has been battered across the board, not just versus the Aussie.

But importantly, AUD/JPY is yet to crack above a key high from 2017 in the 90.30 area and there is another key long-term high in the 90.75 area just above it. Failure to break above these levels swiftly in the coming sessions might signal some, at this point, much overdue profit-taking. Given the backdrop of still very elevated geopolitical risks, analysts are wary on the prospects for the recent rally in the global equity space to continue and, if the recent upwards trajectory does slow, that would remove one tailwind for AUD/JPY.

The recent move higher in global yields is also looking a little stretched and rates strategists have been warning to expect some consolidation, albeit still at higher levels, ahead. That would remove another key tailwind for the pair. However, amid intense speculation about an upcoming hawkish pivot from the RBA, all while the BoJ continually reiterates its usual ultra-dovish stance, many FX strategists will continue to view AUD/JPY as a buy-on-dips.

The only problem for the technicians is that there isn't any notable support until all the way down at 86.00 (roughly 4.0% lower versus current levels). Unless there is a big reversal lower in equities and yields, it's hard to picture AUD/JPY falling back to such levels. Bulls may instead mull adding to longs around key psychological levels, like perhaps the 88.00 mark.