Bias: The bias is bullish-to-range-bound as the AED sits above the 90-day average and in the upper half of the 3-month range.
Key drivers:
- Rate gap: The UAE Dirham’s stable peg to the US Dollar and alignment with US interest rate policy support its strength against the yen.
- Risk/commodities: Oil prices are currently trending above their average, which benefits the AED as the UAE is a significant oil exporter.
- Inflation trends: The recent easing of inflation in Tokyo may lead to a paused or slower adjustment of the Bank of Japan's policy, affecting the Yen's value.
Range: The AED/JPY is likely to hold its present position while potentially drifting within the recent range.
What could change it:
- Upside risk: Strong economic indicators from the UAE could lead to further appreciation of the Dirham.
- Downside risk: Any aggressive monetary measures from the Bank of Japan could strengthen the Yen against the Dirham.