AUDJPY

Whilst Australian employment held up, it doesn’t let inflation off the hook as a weak print tomorrow could see rate cut calls resurface.

The Australian dollar fell to the bottom of the pack following today’s RBA minutes, as traders questioned RBA’s confidence in their labour market forecasts.

For the second day in a row, the Japanese yen is the weakest major currency as today’s heavy risk-on bent leads to selling in the safe haven currency. Meanwhile, the aussie has caught a big bid despite the RBA citing “increased risks” to the household sector.

The first day of the new month has started positively for equities and risk-sensitive yen pairs, while commodity dollars have also shown relative strength so far in the session.

One of the first things that new traders to the FX markets learn is that many currencies are correlated with other markets. For instance, the close relationship between oil and the Canadian dollar or certain metals and the Australian dollar are intuitive given the importance of exporting those commodities for the Canadian and Australian economies.

“The trend is your friend” is one of the first market witticisms most new traders learn, with good reason: After all, buying pullbacks or breakouts in established uptrends and downtrends is the essence of many of the world’s most successful trading strategies.

Another day, another round of trade war tweets drawing the attention of traders.

Today the generally positive sentiment in the stock markets has helped to keep this risk-sensitive AUD/JPY cross supported ahead of Aussie employment data on Thursday and the Bank of Japan’s policy decision a day later on Friday.

News that North Korea is willing to discuss disarming its nuclear weapons if its own safety can be guaranteed has reduced the tension in the region and the Japanese yen has weakened a little as a result.

The Aussie has been supported not just due to the domestic economy's outperformance but also by rebounding base metal prices thanks to a brighter outlook for the world's second largest economy and major commodity consumer, China.

Global stock markets sold off while safe haven gold and yen surged higher today. Market commentators blamed today’s risk-off trade on shenanigans at the White House.

The Australian dollar and the Japanese yen are the obvious choices when it comes down to trading during the Asian session tonight. Not only do we have rate decisions from central banks of both Australia and Japan, but we will also have the latest manufacturing PMI data from China, the world’s second largest economy and Australia’s largest trading partner. Clearly, the Aussie and/or yen could move violently should we see major surprises from these central banks, or a horror show from Chinese data. But don’t have any nightmares, as we are expecting more tricks than treats from the Bank of Japan and the Reserve Bank of Australia on this Halloween night.

The Australian dollar has been fairly stable recently, and it has actually risen against weaker rivals such as the New Zealand dollar and Japanese yen. However, that could all change if investors start to dislike risk, if, for example, U.S. elections or disappointing corporate earnings cause global equities to retreat. There is also a risk that tonight’s CPI inflation figures from Australia will disappoint expectations, while the Reserve Bank of Australia may surprise the market with a dovish policy statement next week. Among the most interesting Aussie pairs to watch is the AUD/JPY, for there is also some key Japanese data to consider at the end of this week, ahead of the Bank of Japan’s policy meeting next week.

Traditional risk assets have surged higher over the past couple of days in reaction to the latest policy decisions from the Bank of Japan and the US Federal Reserve. Global equities, dollar-denominated metal and oil prices, the euro and commodity currencies have all benefited from this “risk-on” trade.

The AUD/JPY is among the most interesting FX pairs to watch this week, for both fundamental and technical reasons. My colleague James Chen, in his USD/JPY article, has already written about the Bank of Japan’s meeting on Thursday and has highlighted, among other things, the ineffectiveness of the BoJ’s easing tools and tactics. In short, the market may be expecting to see a policy change as speculation was rife on Friday that the BOJ may consider offering financial institutions a negative interest rate on some loans.

The Australian dollar has outperformed in recent days due mainly to the rebounding commodity prices. In addition, the RBA is no longer considered to be a dovish central bank which means interest rates are likely to remain at 2% for the foreseeable future. In fact, if commodities recover more profoundly and inflation picks up then calls will increase for a rate rise. What’s more, economic data from Australia has improved markedly in recent times, with the fourth quarter GDP rising 0.6% in the fourth quarter, as we found out overnight. This was more than expected. If the current “risk-on” trading environment sustains itself, then the Aussie is likely to perform better against a currency where the central bank is still dovish, such as the euro or the yen. The yen has fallen sharply over the last few days as traders continue to unwind their safe haven bets as equities and oil bounce back. Unless something happens to cause stocks to tumble once more, it looks like the AUD/JPY may have further room to the upside.

Since the European stock markets closed earlier today, trading has been rather quiet. US markets are shut due to the Martin Luther King bank holiday and understandably this is having a knock-on effect on FX and commodity markets where liquidity and volumes are apparently thinner than usual. The good news is that that volatility should make a quick return due to the sheer number of top-tier economic data this week, starting with some important Chinese figures in about 8 hours’ time, including GDP.