The Australian dollar has taken a beating in recent trading days, as the selling in it was mainly a result of the recent NZ election which dragged on the AUDUSD. This may come as a surprise, but there is some correlation between the two when it comes to their pairing with the USD. However, this selling has now stopped and markets are focused on the CPI data due out in coming days, which will provide some strong direction. The current expectation is a big rise in CPI data from 0.2% q/q to 0.8% q/q, which would bring inflation in that 2% target. Going further above the 2% target we can expect this to raise the attention of fixed rate markets who will be looking to see if this gives ammunition to the Reserve Bank of Australia to lift rates. The economy does seem to be bouncing back so this catalyst could lead to the bulls rushing back into the AUDUSD, as it continues to look stable and lack any political risk when compared to NZ at present – which has a degree.
With all this in mind where to for the AUDUSD. Well there are two ways to look at it and a weaker USD is not the answer here. If we do see a weaker CPI result then I could see the AUDUSD whacked and pushed lower to support at 0.7729, but it shouldn’t have a massive impact. On the upside if we saw a CPI reading that beat expectations and markets felt it might be sustained then I could see resistance at 07900 targeted, with long term upside potential of hitting further resistance levels at 0.8000. Either way you look at it there is potential for bigger movements in the AUDUSD and potentially the AUDNZD as well, but CPI figures will have a big impact on market sentiment for the rest of the week.
Shinzo Abe got what he wanted as he swept back into power after this weekend’s elections and the USDJPY was quick to respond by losing some ground on the Monday open, as Yen bulls appeared in the market. The continuation of Abenomics will be interesting, it has been one of the greatest economic experiments of its time. The reality though is that it has not really caused the expected result and may have created more problems. Markets however are expecting that the Bank of Japan governor will be replaced and another more hawkish governor could be brought in to create further change from a monetary policy point of view.
For the USDJPY traders it’s a good time to be bullish, but also realise that the USDJPY does like big levels and to move sideways from time to time as well. Resistance at 114.258 thus far has been a hard ask for the market and I am expecting to see a real test here. If we can see a push through then further extensions to 115.322 are likely to be on the cards here. But USD strength will also need to hold up and it has suffered recently.