The AUD / JPY is trading at the highest levels since the end of January 2020, with risk assets offering firmly and recovering strongly again on the European and American markets. At the time of this writing, the cross has consolidated around 75.45, between 74.31, the lowest session so far, and 75.47 the highest.
Much of the Aussie’s leg work is already done in this cross and the yen is what makes up for the extra gas. The USD / JPY has seen a move towards the 109 level as markets re-risk in the hope of a V-shaped recovery in the global economy.
We see surprising data from some of the largest and most developed economic economies, including those of the countries hardest hit by the virus. In addition to the government and central bank stimulus, investors are given the green light to continue rising stocks in what could be described as fear of failure.
The crossover is closely linked to the performance of the global indices and until there is a good downward correction in stocks, the traditional playbook means that there is little chance of a significant decline in the short term . However, given the fragility of these markets, the house of cards could come up against a number of geopolitical factors at this stage. Trade wars are here to stay and threaten in the background.
A solidly favorable product
The commodities market also posted strong twists this week and the CRB index climbed again without any signs of slowing. However, gains were limited while demand remained subdued. Iron ore futures, which have contributed to the upside for the Aussies in recent times, have remained stable at just under $ 100 / t as investors weighed on strong shipments from Australia against constraints on Brazilian production. “The market remains concerned about supply disruptions in Brazil,” said analysts at ANZ Bank.
An outbreak of COVID-19 in the country also threatens to further restrict operations. Strong demand from China also continues to support sentiment. The Chinese steel industry’s PMI rose to 50.9 in April, the first time in expansionary territory since mid-2019.
Although we saw promising rebound figures in the economic data, ANZ analysts pointed out that GDP fell 0.3% q / q in the first quarter, with a sharp drop in demand from the private sector as main engine and warns of new contracts to come.
We expect GDP to drop sharply in Q2, a second straight drop that would meet the technical definition of a recession – the first in Australia since the early 1990s. The recovery is unlikely to be V-shaped and more stimulus will likely be needed to support growth over the next year.