AUDJPY Up and Away

2021年2月24日

As the gap rapidly grows between the Australian 10 Year Rates and Japanese 10 Year Rate, the AUDJP carry trade becomes even more desirable. This week as the pair soared above 83.50 - levels that it has not seen since late in 2018 and the currency pair is currently trading around 83.6.

There are several fundamental factors driving this trend.
Australia's economy is rebounding and this is sending Australian 10 year rates higher. This is despite the RBA increasing its QE program at is last meeting in February.
The commodity boom in copper and Iron Ore is creating demand for the Australian dollar and sending it even higher
Meanwhile Japan is struggling with the virus. While it's 10 year rates are rebounding in percentage terms, the absolute gains are well below the basis point gains being by Australian 10 year rates.
Meanwhile bets are growing that The Bank of Japan will signal negative interest rates at its meeting in March - so this is keeping the lid on the Japanese rates for now.

With the fundamentals favouring continued growth, and without a major risk reset, it is likely that the growing gap between the two countries 10 year rates will continue to expand. This means $84 and $85 will be within the currency pair's sights.