The Australian dollar rallied against the Japanese yen on Wednesday, as we continue to see a lot of movement in the JPY-denominated crosses.
AUDJPY
The Australian dollar continues to push higher as we see the Japanese yen crumble. The interest rate differential obviously favors Australia, and a break above the crucial 114-yen level is an area that I think we will be watching very closely.
Ultimately, this is a market that I think is going to continue to see upward pressure as the Australian dollar is being somewhat insulated from certain troubles due to commodities, but also the idea of good news coming out of the Middle East has helped some of the riskier currencies such as the Australian dollar.
The Japanese yen is considered to be a safe haven instrument, but you should also keep in mind that the Bank of Japan is in a situation where it cannot tighten interest rates very strongly, and certainly not enough to close the gap between these two economies.
Central Bank Policy and Market Support
The Reserve Bank of Australia recently raised rates and that of course is a major sign of strength to begin with, especially considering that Australia is one of the few places that we have seen this play out.
If we do pull back from here, the 112 yen level is an area that I'd be watching very closely as potential support. I do recognize that we have a lot of noise and I do think that with all of the headline noise that is a constant, the fact that we are at recent highs suggests that there are enough risk appetite based traders out there to truly push this thing higher.
I am a big proponent of shorting the Japanese yen, in this case buying the Australian dollar, but that is true again against multiple other yen denominated.
Potential signal: I am buying at 114.33 with a stop loss at 112.33 and a target of 118.