AUD/JPY retreats from 12-month high

After having help up for a while, the AUD has finally started showing signs of strain as the risk trade somewhat unravels on the back of geopolitical strain. 

Japan
Source:Bloomberg

While the AUD and other risk currencies unwound, safe-haven demand picked up, with the yen being one of the biggest beneficiaries. This also saw AUD/JPY retreat from a 12-month high and set the scene for further weakness in the near term. While Japanese officials have been putting in various measures to try and weaken the yen, the currency’s safe haven appeal often sees this unravel.

At the moment there are two key regions, Iraq and Russia, which are presenting significant risk; as a result, it is hard to bet against yen strength. Markets focused on Vladimir Putin proposing to withdraw a mandate to use military forces in Ukraine. While this was a positive and resulted in some stability in European trade, further reports that Syrian warplanes attacked targets in western Iraq sent risk assets into a spin again. Additionally, pro-Russian militants remained active in Ukraine despite reports Putin called a ceasefire.

AUD/JPY has pulled back from highs of around 96.33 and is now trading near 95.40. This geopolitical risk seems likely to heighten in the near term and this could see the pair come under further pressure. With the next key support being closer to 94, there is a real possibility we could see these losses extended in the near term.

Having said that, there is an uptrend support that comes in at around 94 and this could encourage some near-term buying. There is still a data dump to come out of Japan on Friday and this could result in further volatility for the pair. 

Click on chart to enlarge.

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