AUD/JPY Poised for Historic Highs as Funding Gap Drives Momentum
The Australian Dollar is poised to reach historic highs against the Japanese Yen, trading just 19 pips beneath its 17-year ceiling at around 114.75. This significant milestone comes as the pair experiences a strong surge in value, with the August bar running 3.8% higher and trading at its own high with two sessions left.
The AUD/JPY's remarkable recovery is attributed to a funding gap of 335 basis points, which has widened since Australia's interest rate increases this year. This disparity, coupled with the pair's proximity to its ceiling, suggests a bullish setup that resolves upward.
However, the Australian economy's contribution to this cross is limited, as evidenced by the recent decline in business investment and the stagnation of iron ore prices below $100 per tonne. Moreover, China's official manufacturing gauge remains beneath the contraction threshold at 49.2, which poses a significant risk to Australia's exports.
The Reserve Bank of Australia's interest rate decisions will likely continue to influence the AUD/JPY's trajectory, while Tokyo inflation data due on Thursday may provide some insight into the Japanese economy's performance.