AUD/JPY catches a bid despite risk-off conditions

• AUD/JPY bulls stay in charge despite risk-off markets. 
• Higher commodity prices are the driving force. 

AUD/JPY has been supported in the open due to a spike in global commodity prices spurred by Russia’s invasion of Ukraine. The fears of an inflation shock in the world economy as oil soars on the prospects of a ban on Russian crude supplies as lifted the commodity-linked currency, AUD.

Meanwhile, AUD/JPY, which usually walks toe to toe with risk sentiment with a high beat to global stocks, is rallying despite the sell-off in US futures and the Nikkie on Monday. The S&P 500 futures are off by over 1.5% while the Nikkei is losing 2.9% at the time of writing. 

DXY is in the driving seat as risk-off flows move in to support the US dollar, taking USD/JPY along for a 50% hourly mean reversion at the same time, retesting 115 the figure. 

There are concerns that the price of oil will worsen Japan’s trade deficit as the country is a net oil importer. Some investment banks are citing that as the cause for 120 USD/JPY down the line:

“The biggest side-effect from the Ukraine situation is the rise in commodities, which deteriorates Japan’s terms of trade by expanding trade deficits,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley in Tokyo. “On top of that, the US looks set to raise rates this month, which widens rate differentials and leads to dollar buying as the BOJ isn’t expected to shift policy under such circumstances.”

Additionally, the AUD surplus is a supporting factor and US dollar receipts in commodities sold will be something that traders will continue to weigh up for the forthcoming weeks.