AUD Jumps to 30-Year High Against JPY on Funding Trade
The Australian Dollar (AUD) is on the cusp of breaking out to generational highs against the Japanese Yen (JPY), trading at a 19-pip distance from its ceiling at 114.75. This level was last breached in September 1990, nearly three decades ago.
The AUD/JPY pair has been on an impressive run, with August's bar currently running 3.80% higher and trading at its own high with just two sessions left to go. Additionally, the daily Stochastic Relative Strength Index (Stoch RSI) is near 84, indicating a strong bullish momentum.
The current price action suggests that the AUD is receiving support from the funding trade, which has driven up the currency despite a weak Australian economy. Business investment in Australia contracted by 3.6% in the June quarter, while iron ore prices have been trading below $100 a tonne, indicating a lack of demand for the commodity.
The biggest driver of the AUD's strength is its interest rate differential with Japan, which stands at 335 basis points. The Reserve Bank of Australia (RBA) has been increasing interest rates to combat inflation, which has widened the gap between the two currencies.