COVID-19 Risk
Despite today's strong risk on tones it is worth having a look at the AUDJPY in case the COVID-19 cases pick up again. In particular the latest Beijing outbreak will be under careful scrutiny for the next few days. Around 30% of Australia's GDP comes from its trade with China. So if there is any further news of a second wave of infections, like the Beijing food market, within China that will weigh on the AUD. Yesterday, mainland China reported 8 out of the 16 districts having cases in Beijing.
US-China / US-Australia trade risks
Although quiet now, the ongoing trade dispute between China, US and Australia all flare up from time to time as US elections approach. For the US part of the America First policy involves President Trump redressing perceived imbalances in trade between the US and China. Every time the anti-China talk escalate into anti-China action we see risk off and the AUD sold.
10 year yields
The Australian 10 year bond market has a close parallel to the AUDUSD pair. The recent drop in bond yields we have seen post the Fed meeting last week have added further downside for the pair. Also, a number of AUD pairs have nestled up to some pretty major technical levels.
JPY strength
The same reasons above that weaken the AUD will also, simultaneously, strengthen the JPY. The outlook for an AUDJPY bearish bias remains in place as long as the above tensions remain. In particular, at the time of writing, any increasing number of COVID-19 cases is particularly concerning and likely to weigh on the high beta AUD.
Some technicals on AUDJPY
Here are three places to look for. Expect breaks on trendlines below - the two most obvious ones are marked. Also, expect sellers on any retracements back to recent levels. Obviously, if the risks of COVID-19 second waves dissipate, then the AUDJPY bearish bias will disappear too.
