• AUD/JPY’s rally eased on Tuesday, with the pair on course to post only its second daily loss since 14 March.
• But after dipping as low as the 91.40s, the pair managed to recover back above above the key 92.00.
• Any pullback towards support in the form of 2017 highs around 90.00 likely to be viewed as a buying opportunity.

The AUD/JPY rally eased on Tuesday, with the pair on course to post only its second daily loss since 14 March after hitting its highest level since mid-July on Monday. Crucially though, after dipping as low as the 91.40s, the pair managed to recover back above the key 92.00 level that had been acting as resistance last week, a sign that the rally isn’t dead just yet. At current levels in the 92.30s, the pair still trades with losses on the day of about 0.4%, but the day’s price action will instill some confidence that the sharp rally of recent weeks isn’t over yet.

Indeed, as the end of the month and quarter approaches, AUD/JPY looks on course to confirm a historic rally. The pair is up over 10.5% on the month and on course for its best monthly gain since 1995. While signs from the RBA haven’t exactly been hawkish, a hawkish repricing of central banks globally (apart from in Japan) and a subsequent sharp rise in global yields (again, apart from in Japan) has sent the pair lurching higher.

The Aussie also continues to benefit from the idea that the Australian economy is disproportionately geared to benefit from the global surge in commodity prices as a result of the Russo-Ukraine war. At the same time, amid recent positive updates regarding Russo-Ukraine peace talks, the risk-sensitive Aussie alsos stands to benefit from the ongoing recovery in global equity markets.

Perhaps the main bearish factor for AUD/JPY at this point is the fact its already come so far in such a short time and is thus looking overbought. A lack of meaningful economic events in Australia and Japan this week mean focus will very much remain on geopolitics, risk appetite and global yields, with any pullback towards support in the form of 2017 highs around 90.00 likely to be viewed as a buying opportunity, with a target (perhaps) of 100.00.