Australian dollar continues to show weakness against Japanese yen

Anthony Gallagher Anthony Gallagher

9 August 2019

AUD forex trading

The Australian dollar continues to show weakness against other currencies around the world. This is perhaps due to New Zealand cutting rates, in a bit of a sympathy move. There is also the possibility that it’s all about the Chinese trade negotiations with the Americans. This has a massive influence on the Australian economy. Add to that the fact that we have a lot of concerns about the Australian housing market, then you have a recipe for quite a bit of noise, mostly to the downside.

Risk barometer

The Australian dollar versus Japanese yen pair is a significant risk barometer. The Australian dollar is considered to be “risky” and the Japanese yen is considered to be “safe.” This isn’t an indictment on the two countries, but what their currencies were present. The Japanese yen is a funding currency while the Australian dollar is highly levered to commodities. As long as there are going to be concerned about the US/China trade situation, it doesn’t take a lot of imagination to see where the Australian dollar may struggle as there may not be as much demand for Australian copper, iron, gold, etc. Because of this, there is less demand for the currency.

Beyond that, we also have global growth concerns. This means that people won’t be needing any of those materials outside of China as well. If that’s going to be the case, that it’s obvious that there will be little demand for Australian exports. In that sense, considering the geopolitical and global fears out there, this is a bit of a perfect trade to the downside.

Barrier above

There is a significant barrier above in the form of the ¥72.50 level, an area that has Artie been tested a couple of times. Because of this, it’s likely that the market will continue to sell into rallies anyway, and of course, we have the three moving averages on the chart looking very resistive as well. Above I have the blue 20 day EMA, the red 50 day EMA, and the black 200 day EMA. They are all spread out and tilting lower. Even if we were to break above the ¥72.50 level, I think the 20 day EMA also offers a certain amount of resistance.

Trading this pair, looking for value

As I trade this pair, I will be looking for value. This means that I will be looking for an opportunity to sell rallies as they occur, recognizing that this market is in a strong downtrend. It has recently broken through rather significant support on the whole. (Meaning that the Australian dollar has broken significant support against several currencies.) Because of this, every time this market rallies I will be looking for an opportunity to sell unless we were to break above the ¥75 level. This could throw a lot of confusion and perhaps even down into the downtrend. Downside target for me currently is the ¥70 level, which looks likely to be tested in the next few days.


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