- AUD/JPY correlations with risk assets near extremes
- Yuan at record lows ahead of fresh U.S. tariffs
- Key support at 86.05 in focus with downside risks
AUD/JPY: Tariff Sentiment Proxy
is arguably the cleanest market instrument to get a sense of prevailing sentiment towards the U.S. trade war with China, exhibiting extremely strong relationships with both the , riskier asset classes, and measures of market volatility.
You can see that in the right-hand pane below, revealing the rolling 20-day correlation between AUD/JPY with in blue, in red, expected 30-day volatility in U.S. Treasuries in yellow, and in black. All relationships sit at extreme positive or negative levels, underlining why AUD/JPY is essentially a proxy for everything that’s going on.
Given recent developments—including the looming introduction of 104% U.S. tariffs on Chinese imports and the offshore Chinese yuan falling to the weakest level on record ahead of their introduction—it comes as no surprise that AUD/JPY is crumbling, threatening to take out the lows set earlier this week. Risk appetite is nowhere to be seen.
AUD/JPY Technical Analysis
Source: TradingView
What is remarkable is that AUD/JPY is still being respectful of long-standing technical levels despite the chaotic moves we’ve seen, with a rebound earlier this week stalling at former support at 90.27. A similar bullish thrust on Tuesday also stalled around this level.
Should AUD/JPY continue to behave as a risk proxy while remaining respectful of former levels, it provides a blueprint for traders to assess potential setups when they present themselves.
A clean break of 86.05 opens the path for a run towards 84.00, with 80.50, 78.80, and 77.90 other downside levels of note. In a dysfunctional market, any of those levels could potentially be in play. On the topside, 90.27 and 91.86 are levels to keep on the radar.