AUD/JPY: Bears lining up for an attack with dovish RBA sentiment creeping in

• AUD/JPY has been supported following a spike in the Dollar.
• The prospects for the Aussie are a little dire while risk appetite is fragile.

AUD/JPY has been supported following a spike in the Dollar which sent USD/JPY through 107.00 and on to 107.85 while AUD/USD fell to a three-week low from 0.6780  to 0.6739. all eyes will now turn to the Reserve Bank of Australia next week where markets are expecting a rate cut. 

Overnight, the Australian 3-year government bond yields climbed from 0.66% to 0.70% and the 10-year yields from 0.93% to 1.00% while markets are pricing 18 basis points of easing at the 1 October RBA meeting, and a terminal rate of 0.44% (RBA cash rate currently at 1.0%), as analysts at Westpac pointed out. 

The prospects for the Aussie are a little dire

The prospects for the Aussie are a little dire while risk appetite is fragile, which makes for a compelling short case on a fundamental basis although there is a lack of volume coming through as the price stalls the 20-day moving average within its near-term tight range. 

Westpac continues to predict cuts in the cash rate of 25bp in both October and February. "That forecast, which would take the cash target to 0.5% is again all but fully factored-in. Indeed the market’s terminal rate is slightly lower than 0.5%, which suggests the recent thematic of the potential for unconventional policy remains an important aspect of the risk reward environment.," the analysts explained. 

AUD/JPY levels