The pair climbed 2.0% to new multi-year highs of 90.00, and is now eyeing its 2017 highs of 90.30.
The yen has been hurt by the recent rise in stocks and global yields, but not just against AUD.
Despite looking overbought across a variety of short-term quantitative and technical measures, AUD/JPY went higher on Tuesday despite this. The psychologically significant 90.00 mark is just north of AUD/JPY's current levels. AUD/JPY trades at four-and-a-half year highs, with gains of around 2.0% per day. This puts it on track for its best single-day performance since November 2020. This was also the day that the Pfizer Covid-19 vaccine trials data were announced.
AUD/JPY trades at 6.5% higher than its lows of one week ago in 84.50 and is now up 8.0% on the month. With seven trading sessions remaining, the pair is poised to record its largest one-month gain in more than a decade. The yen has suffered from a combination of a continued increase in risk appetite in global equity markets and a historical run higher in US bond yields, as the Fed pivots hawkishly.
AUD/JPY has yet to surpass the key 2017 high of 90.30 and there is another long-term high at 90.75. These levels may not be broken quickly in the next sessions, which could signal that there is a lot of profit-taking. Analysts are concerned about the future prospects of the global equity rally. If the current upwards trajectory slows, this would reduce one tailwind to AUD/JPY.
Global yields are rising, but it is looking stretched. Rates strategists warn that there will be some consolidation ahead, even though they remain at higher levels. This would eliminate a key tailwind for this pair. Many FX strategists will still view AUD/JPY, despite intense speculation about a hawkish pivot by the RBA. This is despite the fact that the BoJ continues to reiterate its ultra-dovish stance.
Technicians have a problem: there isn’t much support below 86.00 (roughly 4.0% less than current levels). Unless there's a significant reversal in yields and equities, it's difficult to see AUD/JPY returning to these levels. Bulls might instead consider adding to their longs at psychologically important levels like the 88.00 mark.
