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Overnight FX moves reveal the Japanese yen as the major winner while the Australian dollar makes up last place within a group of popular currencies. The Australian dollar has plunged over the last 10 days as broader market sentiment has soured. Naturally, the FX market favours safe haven currencies under such conditions while shifting out of high-beta currencies like the Aussie. The AUD/JPY chart depicts the unfolding situation.
Overnight FX Performance
Source: FinancialJuice
The FX outlook for the Australian dollar and Japanese yen have changed – more so for the yen than the Aussie but the overarching macroeconomic environment appears to have shifter. The Aussie dollar has previously enjoyed a spate of strength as the Reserve Bank of Australia has had to contemplate possibly hiking interest rates at a time when major central banks are about to start cutting or have already started lowering their policy rates. However, with US equities selling off and the Bank of Japan preparing to hike rates and taper their bond purchases, AUD/JPY has made a sharp and consistent reversal.
AUD/JPY failed to close higher than the 107.40 on the weekly chart despite trading above the November 2007 level. That marked what appears to be a top, with the pair declining nearly 10% since. 98.50 appears as the next notable level of support.
AUD/JPY Monthly Chart
Source: TradingView, prepared byRichard Snow
The daily chart shows the extend of the decline, with 10 down days over the last 11 trading days split evenly down the middle by one solitary green candle. More notable is the recent bearish acceleration which has catapulted the pair into oversold territory where AUD/JPY may decide to take a breather and bank some profits in the process.
The pair currently tests the 200-day simple moving average (SMA), with the 98.70 level next in sight. In the meantime, a daily close below the 200 SMA would suggest that bearish momentum has not yet run its course. Chasing such fast moving markets offers up sub-optimal risk to reward setups. Instead, a shorter-term correction would be more constructive before assessing a bearish continuation of deeper pullback. A correction towards 102.85, which appears less likely, would present an opportunity to reassess the bearish trend.
Source: TradingView, prepared byRichard Snow
AUD/USD has declined each of the last nine trading days including today if we are to close in the red. A September rate cut is a growing possibility for the Fed and recent encouraging inflation data has only supported this view. Tomorrow, US PCE could either add further evidence of this or muddy the water ahead of next week’s Fed meeting. Analyst estimates suggest we’ll get a minor improvement in the figure with anything but an upward surprise likely to maintain the current AUD/USD downtrend trend.
Similarly to AUD/JPY, AUD/USD presents a sharp bearish reversal offering sub-optimal bearish setups from current levels. Instead, a shorter-term pullback/consolidation around 0.6580 could provide some clarity ahead of the next move, whether that be a bearish continuation or deeper pullback. Support rests at 0.6460 now that the pair has registered a close below the 200 SMA on the daily candle. Resistance appears at 0.6580, the 200 SMA and 0.6644.
AUD/USD Daily Chart
Source: TradingView, prepared byRichard Snow
On the bullish side of the Aussie dollar, AUD/NZD appears less vulnerable to a move to the downside. In truth, commodity currencies like the Aussie and the Kiwi dollar tend to decline in unison, somewhat explaining the limited move to the downside.
The pair remains within a longer-term uptrend with the recent decline looking to test Aussie bulls. AUD/NZD immediately tests the June 2023 high of 1.1052. A daily close below this level may entertain a larger move towards the zone of interest around 1.0930 where prior upward momentum collapsed during 2023. The pair is also recovering from overbought territory, suggesting bullish momentum is likely to come under further pressure. Resistance remains up at the recent spike high of 1.1150.
AUD/NZD Daily Chart
Source: TradingView, prepared byRichard Snow
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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