AUD/JPY Outlook: Slightly positive but likely to move sideways as it is above the recent average but lacks a clear driver.
Key drivers:
- Rate gap: The Reserve Bank of Australia is contemplating rate hikes due to rising inflation, while the Bank of Japan recently hiked its rates, narrowing the interest rate gap between the two currencies.
- Risk/commodities: The Australian dollar is pressured by a decline in commodity prices, while higher oil prices could provide some support for commodity currencies like the AUD.
- One macro factor: China's manufacturing PMI has shown weakness, which if continued, could negatively affect the AUD given its reliance on Australian exports.
Range: The AUD/JPY is likely to trade within its recent range, showing stability with minor fluctuations.
What could change it:
- Upside risk: A strong rebound in China’s economic data could boost demand for Australian exports, strengthening the AUD.
- Downside risk: Continued softness in risk appetite could lead to further declines in AUD against JPY, especially if commodity prices remain weak.