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JPY Outperforms Amid Lower US Yields, Post RBA Aussie Rally Moderates

FOREX
  • USDJPY looks set to retrace a portion of its recent surge on Tuesday, as below estimate US data has placed renewed downward pressure on front-end US yields, prompting a relief rally for the struggling Yen over the course of the US session.
  • Additionally, significant pressure on major equity indices has exacerbated the move with USDJPY seeing a near 1% reversal to print session lows at 136.32. Currently down 0.6%, the pair looks set to snap a 3-day winning streak. Initial support lies at 136.14, the May 1 low. However, more significant support is seen at 135.13, the Apr 19 high and a recent breakout level.
  • Weaker equities have acted as a headwind for the Australian dollar, which earlier in the session had been the best performing major. The RBA surprisingly raised its cash rate by 25 basis points to 3.85%, stressing that it aimed to return inflation to its 2-3% target in a "reasonable timeframe", strengthening language on future hikes.
  • Despite the initial AUD surge, the late reversal has been most notable against the JPY, with AUDJPY declining roughly 1.7% from the day’s highs and reversing the entire overnight advance.
  • Elsewhere, the Norwegian Krone was the worst performer in G10 as crude futures are registering losses of over 5%. The moves come ahead of Thursday’s Norges bank meeting where they are expected to raise rates by 25bps, in line with the guidance handed down in March. Initial resistance in USDNOK has been breached at 10.7922, targeting a move to the 2023 high of 10.8778.
  • New Zealand employment data and commentary from RBNZ’s Orr kicks off proceedings on Wednesday. US ADP employment and the ISM Services PMI are also scheduled. The focus will inevitably be on the subsequent FOMC decision, where a 25bp hike could mark the end of the Fed’s hiking cycle.
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