FX Play of the Day: AUD/JPY Is Retesting Its July Highs!

Hawkish pause? Who she?

In case you missed it, the Reserve Bank of Australia (RBA) just decided to keep its interest rates at 4.10%, surprising some traders who had priced in another 25bps rate hike.

While the central bank maintained that “some further tightening of monetary policy may be required,” RBA members were more interested in having the “time to assess the state of the economy and the economic outlook.” Besides, RBA also noted that inflation has “passed its peak.” Phew!

AUD/JPY 15-min Forex Chart by TV

AUD dropped sharply and widely at the news, but more buyers jumped in shortly after.

AUD/JPY, for example, dropped to the S1 (96.10) of today’s Pivot Points when the RBA dropped its statement but also returned to the 96.50 minor psychological handle before the start of the European session trading.

Does this mean that there are more AUD/JPY buyers than sellers?

Ehhhhh. Not exactly.

For one thing, AUD/JPY is still having trouble breaking above the 96.60 high that it had been knocking on all week.

The latest candlesticks also point to some more resistance around the pair’s current prices.

AUD/JPY breaking or bouncing from 96.60 will likely depend on this week’s market environment.

On one hand, the RBA’s rate hike pause, Uncle Sam’s weaker manufacturing PMIs, and OPEC+ and Russia’s additional output cuts all underscore global demand concerns that could drag “risk” assets like AUD lower.

On the other hand, the FOMC meeting minutes scheduled this week could remind traders of the Fed’s hawkish biases and push USD/JPY higher and take AUD/JPY with it.

Let’s see how AUD/JPY reacts to its July resistance.

I’m leaning more towards selling because, on top of global demand concerns, Bank of Japan (BOJ) officials have also hinted that they’re uncomfortable with JPY’s recent weaknesses.

If AUD/JPY gets rejected at 96.60 and stays below the trend line that we’ve marked, then the pair could drop to its lows near 96.10. It could even make new lows and hit the 96.00 psychological level!

New weekly highs, however, could push AUD/JPY to the R1 (96.74) area if not the 97.00 area of interest from mid-June.

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