The Australian dollar initially fell on Thursday against the Japanese yen to break down below the 114-yen level.
That being said, we've seen the market turn around quite nicely and it looks like we are trying to break to the upside.
If we can get above the 114.50-yen level, I think you have a real shot at the Australian dollar truly taking off against the yen.
In that environment, I would anticipate a potential move to the 115-yen level followed by the 117-yen level. The AUD/JPY pair obviously pays a positive swap as the Bank of Japan has a very low interest rate and I think that probably continues to be the case.
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On the other side of the equation, you have the RBA, which has been very aggressive in raising its rates until recently and I think that is something that you need to pay close attention to because quite frankly, that is a rarity out there, not the norm. Because of this, the markets continue to reward Australia, as the rates are attractive there, in relation to so many other places.
After all, most central banks are trying to do what they can to keep markets somewhat steady, but it's obvious that Australia is worried about commodity inflation and that in and of itself is going to be an issue. Because of this, I like the idea of buying this pair on dips and I do think that it's probably only a matter of time before we go higher. To the downside, I see the 112-yen level as a potential support level, and could be a bit of a “bottom” in the market at the moment.
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