Despite a large amount of Japanese investors selling their Australian debt positions, the Aussie/Yen (AUD/JPY) pair has not had a major pullback since September. While the calls for a correction make sense, especially with the weaker commodity prices we have seen in recent weeks, this trend may not slow down as many are expecting.
Yesterday, the Reserve Bank of Australia released their minutes and while it highlighted subdued growth in employment, housing finance, and investment, the tone hinted at a much more wait and see approach. This could mean no rate hike next meeting as well.
With the G-20 leaving the door open for Japan to fight deflation and ultimately devalue their currency, this trend will continue. A vote of confidence from this move was also supported by Draghi and Bernanke.
Ultimately, once the news settles that Taro Aso contradicted Shinzo Abe’s claim of buying foreign government debt and the fact that two members opposed the doubling of Japan’s inflation target, the yen will resume weakening.
Price action on the weekly chart shows the recent consolidation that has occurred over the couple of weeks. If price breaks out above the 97.50, we could see momentum ignite a rally to 99.50. As long as the 96.00 is respected, this bullish trend should last. A breakdown of this key level could see a corrective move towards 94.50.