AUD/JPY: Aussie Remains Supported as Business Confidence Holds Up

The Australian dollar is deemed to sustain yesterday’s rise opposite the Japanese yen as a report showed Australian businesses remain cautiously confident amid improvements in the global economy despite difficult conditions at home. Meanwhile, the Yen has once again come under renewed pressure after a US Treasury official indicated support for Japan’s efforts to end deflation.

Australian business confidence remained slightly positive in January as an improved outlook in China and the series of rate cuts at home helped boost sentiment. The National Australia Bank’s monthly business survey’s confidence index rose from 2 points in December to 3 in January, just above the level that suggests optimists outnumber pessimists. The business conditions gauge, a measure of hiring, sales and profits, inclined to -2 from -5 in the previous month. NAB Chief Economy Alan Oster commented that the recovery primarily reflects external factors, including the rally in global equity markets, stabilization in China, and the recent RBA cuts. However, forward orders came in at -4 points, up just a notch from December while the employment index fell, suggesting businesses are more likely to lay-off than hire. Nonetheless, the overall positive tone of the report is apt to lift the Aussie today on a better outlook for the Australian economy.

Meanwhile, the Japanese yen seems back to its bearish ways as US Treasury Undersecretary Lael Brainard said in Washington yesterday that she supports efforts by the Japanese government to combat deflation and reinvigorate growth. She also stressed the importance of structural reforms accompanying macroeconomic policies to achieve such goals. The comments are likely to urge Japan’s Prime Minister Shinzo Abe to press further with his economic policies despite criticism that such moves are intentionally weakening the Yen. On the economic front, the Cabinet Office is awaited to report that consumer sentiment remains weak in the nation. The Consumer Confidence index is estimated to come in at 40.5 points in January, only a slight improvement from the 39.2 points in December. Considering these, a long position is recommended for the AUD/JPY trades today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.