AUD/JPY retreats from the 21-month high ahead of the BOJ rate decision

AUD/JPY cross retreated from the 21-month high of 89.50 as carry demand weakened on caution ahead of the Bank of Japan [BOJ} and Fed rate decisions. Weakness in the iron ore prices could be weighing over the Aussie dollar as well.

BOJ could be a dud

The Bank of Japan (BoJ) is widely expected to maintain its policy stance unchanged at its meeting ending on Sept 21st, including its ‘QQE with yield curve control’. 

Ivan Delgado, Chief Editor at FXStreet writes, "announcements in policy changes by the Bank of Japan have become less and less frequent ever since the introduction of its YCC (Yield Curve Control), as the focus got diverted towards the implementation of JGB purchase operations to stabilize the curve. So radicals have been the steps taken to reduce market volatility, that the BoJ has essentially been one full year without announcing further policy changes since the introduction of the YCC one year ago. As one may anticipate, the volatility post BoJ meetings across FX, rates, and equities has been greatly reduced. At present, the BoJ meeting is currently perceived as one of the lowest risk events out of all G10 Central Banks."

With volatility at historical lows, the AUD/JPY cross is likely to remain bid, although the direction of the next move depends on the risk sentiment post-FOMC.

AUD/JPY Technical Levels

The AUD/JPY currently trades at 89.30 levels. A move back above the previous day's high of 89.50 would open up upside towards 90.00 [psychological levels]. A violation there would expose 91.21 [61.8% Fib extension of July 2016 low-Feb 2017 high-Apr 2015 low].

On the downside, breakdown of support at 88.88 [5-DMA] could yield a pullback to 88.28 [10-DMA] and 88.00 [zero levekls].