Aussie-Yen Set to Extend Rally on Commodities and Growth Bets

The Aussie dollar appears poised to extend its rally against the yen as bets on the global economic rebound overshadow the Reserve Bank of Australia’s efforts to restrain the currency.

The growth-sensitive pair, which has surged 35% from a decade low in March, may test resistance around 84 yen per Australian dollar in coming weeks after recently breaching its April 2019 high.

Key technical indicators, including its moving average convergence-divergence, suggest upward momentum will continue, while hedge fund positioning also points to further gains.

Aussie-Yen Set to Extend Rally on Commodities and Growth Bets

The steady advance in commodity prices that underpins the growth outlook for the Aussie is coming just as vaccines start to find traction in the fight against the coronavirus, reducing the yen’s haven appeal.

Net long positions in the Australian dollar among leveraged funds rose to a three-month high in the week ended Feb. 9, while net long positions in the yen shrank to a three-month low.

The uptrend in Aussie-yen that was already clear by mid last year, accompanied by Japanese purchases of Australian bonds, would likely have been noticed by the RBA before it boosted monetary stimulus in November, according to Jane Foley, head of FX strategy at Rabobank in London.

Read More: Japan Funds Buy Record Level of Aussie Debt in 2020

The central bank’s quantitative easing may help to limit upside for the currency pair, “though the better-than-expected recovery in the Australian labor market and stronger house-price inflation should still lend support,” she said. This suggests “scope for further modest gains” in the coming weeks and months.

The release of Australia’s January jobs data on Thursday provides investors with another opportunity to test this view, after the unemployment rate in December fell to an eight-month low.

Below are the key Asian economic data and events due this week:

  • Monday, Feb. 15: Japan GDP and industrial production, Thailand GDP, Singapore GDP, Indonesia trade, India trade, Philippines remittances
  • Tuesday, Feb 16: RBA minutes, New Zealand house sales
  • Wednesday, Feb 17: Japan trades and machinery orders, Singapore non-oil domestic exports
  • Thursday, Feb 18: Australia jobs, Indonesia rates decision
  • Friday, Feb 19: Australia retail sales, China BoP current account, Japan CPI and PPI, Indonesia current account

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