The Australian dollar rose against the yen on Tuesday, as we continue to see a lot of carry traders enter the market and short the Japanese yen.
AUD/JPY
The Australian dollar has rallied slightly against the Japanese yen during the trading session here on Tuesday as the interest rate differential continues to favor the Australian dollar in general. The Japanese yen is in trouble mainly due to the fact that the interest rates in Japan are so low, and we're starting to get information that suggests that maybe the Bank of Japan doesn't have to tighten rates very much.
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When I look at the overall picture right now, it's somewhat obvious that traders are trying to test the Bank of Japan, despite the fact that they have intervened a couple of times, and the 115 yen level above, I think, remains a ceiling. When you look back in this AUD/JPY pair for several months now, we've been in this range between 110 yen and 115 yen, so we are getting close to the top again.
Carry Trade Upside and the 115 Ceiling
Nonetheless, when you zoom out, it's consolidation after a huge move to the upside. I think the Japanese yen is still the main story in the forex markets, and as long as that remains the case, I think it does make a lot of sense that we continue to look for buying opportunities because not only is it with the trend, but we get paid at the end of every day.
A move above the 115 yen level would be a very bullish sign, and the measured move from the consolidation suggests that we could go looking to the 120 yen level. Anything below the 200-day EMA would be a major shift, but we are 400 pips from that, so I'm not even concerned about the downtrend at the moment.
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