The Australian dollar continues to pay you to hold onto it against the Japanese yen, and on early Tuesday, we saw the RBA raise rates again to widen the gap. I believe the buyers will continue to see this as constructive here.
AUD/JPY
The Australian dollar fell during the early part of the trading session on Tuesday, breaking below the 200-day EMA before showing signs of life. This is despite the fact that the RBA hiked rates during the early part of the session, but the rate hike was a 6-3 vote, suggesting that perhaps they may go on hold. That might limit some of the bullish behavior that you would expect.
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Carry trade
The market does pay you to hold on to it. That being said, I think we've also got a scenario that we need to pay close attention to, in the sense that the market does pay you to hold on to it. The Bank of Japan supposedly may possibly raise interest rates, but we'll have to wait and see.
To me, this looks like a consolidation pattern trying to sort itself out between ¥112 and ¥109. All things being equal, if the yen starts to weaken, this will be one of those places that traders come to. After all, a 4.85% interest rate coming out of Australia versus a 1.25% interest rate coming out of Japan means that it is an attractive carry trade play, and we could find ourselves eventually looking toward the recent swing high near the ¥115 level.
I like the idea of buying dips here and just taking my time. I don't want to jump in with a massive position. I'm not expecting fireworks here, but I do expect that the carry trade shows itself again. This is a longer-term plan of mine, and I believe the interest rate carry will continue to be beneficial overall.
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