AUD/JPY kicks off the daily watchlist for the new month with the RBA monetary policy meeting set to make waves very soon.
Intermarket Snapshot
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Fresh Market Headlines & Economic data:
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- ISM manufacturing index fell to 52.1 for May, compared to expectations for 53
- A private survey shows China’s manufacturing activity for May was slightly higher than expected
- Oil prices rise as Saudi Arabia suggests OPEC will keep limiting output
- UK Manufacturing PMI signals contraction as new orders fall and stockpiling activity pauses
- IHS Markit Eurozone Manufacturing PMI: Manufacturing economy continues to contract in May
- Swiss Consumer Price Index increased by 0.3% in May
- New York Times: Trump administration discussed Australia tariffs
- AIG Manufacturing index falls 2.1 points to 52.7
- House values fall ahead of likely RBA rate cut
- Japan’s business spending increased in January-March amid murky outlook
- Nikkei Japan Manufacturing PMI: Output continues to fall amid weak demand
Upcoming Potential Catalysts on the Forex Calendar:
- Fed Barkin speaks in Charlotte at 5:40 pm GMT
- Australia retail sales at 2:30 am GMT (June 4)
- Reserve Bank of Australia rate statement at 5:30 am GMT (June 4)
- Euro area CPI Flash estimate at 10:00 am GMT (June 4)
- Euro area Unemployment rate at 10:00 am GMT (June 4)
- RBA Lowe speaks in Sydney at 10:00 am
- Euro area CPI Flash estimate at 10:00 am GMT (June 4)
What to Watch: AUD/JPY
One of the biggest fundamental events of the week for currencies is the Reserve Bank of Australia’s upcoming monetary policy meeting, which has high expectations of a rate cut coming. There’s also been a lot of debate among the FX community as how much the RBA will cut down the road and how it could affect the Australian economy.
So, with a lot of uncertainty ahead, there is big potential for market movement in the Aussie, and given the current global risk aversion behavior we’re seeing due to geopolitical issues with trade, the yen makes sense to pair with the Aussie today as it will likely continue to see action due to its “safe haven” status among currency traders.
From a price action standpoint, AUD/JPY made a sharp move lower recently from 76.00 to 75.00 on the geopolitical trade tensions last week boosting the yen, but has since bounced this week to retest a strong broken support area around the 75.50 minor psychological level. For the bears, shorting from this area up to the strong resistance area around 76.00 makes sense if you expect a rate cut and bearish reaction in the Aussie. For the more conservative traders, you might want to see an actual retest of 76.00 before jumping in with a small position.
For the bulls, a no rate cut scenario or the RBA setting up an expectation of limited rate cuts down the road could spark an Aussie rally, so it makes sense if you’re looking to buy this pair to wait for the actual event and reassess your fundamental bias. A drastic shift in global trade rhetoric to positive would also be a likely buy signal for the pair, but a super low probability scenario at this point.
Also, since this type of event is very likely to see a burst of volatility, a news straddle strategy could be an appropriate approach if you are able to watch and trade the event live.