Home Forex Market Analysis AUD/JPY: Australian Dollar Holds Small Gains Amid Rift With China

AUD/JPY: Australian Dollar Holds Small Gains Amid Rift With China

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AUD/JPY: Australian Dollar Holds Small Gains Amid Rift With China
  • Both Australia and Japan have announced new restrictions due to the emergence of the new Covid-19 variant.
  • Japan is looking to reduce Covid-19 resurgence before it decides on the Olympics.
  • Australia’s retail business performed well in the wake of the pandemic.

The Australian dollar has surged by 35.11% against the Japanese yen to reach a 2-year high of 81.37 on February 12, 2021. The 52-week range analysis shows that the yen gained close to 20% after the ravaging impact of Covid-19 hit the Australian economy from February to March 2020.  On February 12, 2021, the Australian government announced that Victoria would go on a 5-day lockdown to curb the hyper-sensitive new Covid-19 variant. In the FY 2016-2017, the state’s economy generated A$399.0 billion contributing 23% of Australia’s GDP. The lockdown may affect exports that reached A$29.5 billion in 2017. Japan’s state of emergency in 10 regions is maintained despite the economic pressure to open.   

With the Olympics question yet to be unraveled due to the pandemic, further restrictions may cause Japan’s economy to shrink by 5% in Q1 2021. In December 2020, the economy shrank by 2.4%. The current state of emergency will continue to lower consumer expenditures in the FY 2020-2021. Core consumer prices (CCP) are expected to fall by 0.5% before 2022, further reducing the inflation rate.   

consumer price index

Japan’s consumer price index (CPI) in December 2020 fell to 101.1 (-1.2% YoY). Ahead of the next release on February 19, 2021, Japan’s outlook looks grim. The CPI declined 0.1% MoM on a seasonally adjusted basis (SAB) into 2021. Machinery orders that form the bulk of the economy also fell 6.2% (MoM). As expected, volatility drew down core orders (excluding ships and electrical utilities) by 3.0%. While exports grew 6.6% in January 2021, imports are expected to lower by 6.0%. The country’s trade deficit may reach 600 billion yen (5.72%) by the second quarter of 2021.

Australia, on its part, is working hard to recover the lost time in 2020. Consumer spending in December 2020 was at a record. Purchases in shops were 9.6% higher in retail shops as of December 2020 than in December 2019. The total monthly retail turnover (MRT) almost reached $32 billion.

total monthly retail turnover

The exciting bit is that as restaurants and cafes were closed globally due to the pandemic, Australian eateries recorded monthly returns of almost $4 billion as of December 2020. 

The annual retail turnover (ART) grew by 6.2%, boosted by household goods and furniture sales at 17%.

monthly turnover for cafes, restaurants and takeaway food

The economy is resilient despite the ongoing diplomatic problem with China. Towards 2021, Beijing imposed high tariffs on Australian products, including coal, beef, and copper. For example, wine from Australia had a 212% additional tariff to its price that made selling difficult in Beijing and China. South African wine sales jumped 50% due to this dispute from December 2020 to February 2021.  

So far, the China-Australia trade row has cost the latter close to $3 billion due to banned exports. Renewed US-China trade tensions have caused the Australian share index (ASX 200) to decline to 6,807 (-0.6%).  

Technical analysis

AUD/JPY Technical analysis

Projection of the price action shows that the AUD/JPY trading pair may move above the 82.00 marks. The 14-day RSI supports an intense buy action at 69.276, with the stochastic RSI showing the currency has already been overbought at 100.00. The 14-day average true range (ATR) indicates high volatility at 0.1068. The 100-day SMA shows that the pair may find support at 81.02 with the EMA at 80.96.

The Chinese factor may continue to affect the Australian economy for a while, putting a small lid on the latter’s growth.

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