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Will AUD/JPY face a decisive moment as China’s economy shows signs of stability?


Sep 11, 2023

China’s new yuan loans saw a significant increase in August, reaching 1.36 trillion yuan compared to the previous month’s 345 billion yuan. This surge in loans suggests growing optimism for China’s economic outlook as stimulus measures start to impact the economy.

Meanwhile, the US dollar experienced its biggest drop in two months, as both the yen and yuan strengthened. This shift in currency values reflects a risk aversion trade that has been taking place over the summer.

Looking specifically at the AUD/JPY pair, the Australian dollar remained weighed down by a pessimistic view of China’s economy, while the yen was influenced by a wider interest rate differential. The daily chart for AUD/JPY highlights a global growth scenario that depends on either a rebound in China or a solid recovery in Japan.

The chart also shows a symmetrical triangle formation, indicating that price movement has converged around the 94.00 level. This convergence suggests that the longer-term bullish trend that began after the pandemic low in March 2020 may resume, or it could mark the start of a significant bearish reversal.

The Australian dollar and Japanese yen are likely to continue reflecting market risk sentiment, making them sensitive to factors such as this week’s US inflation data and China’s decision on rates and economic activity. If a bullish sentiment prevails, the price could target the 95.50 region, while downside support can be expected from the 200-day SMA level at 92.00.

In terms of the Australian economic calendar, the focus may shift to events in the US and China, overshadowing the release of Australian economic data. The most significant release for the week is Australia’s jobs report, which may show a rebound in job growth but is unlikely to impact rate hike expectations for the Reserve Bank of Australia.

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