AUD/JPY sinks below 76.00 as risk off flows gain traction

• Pronounced weakness in AUD/JPY has taken the pair below 76.00, amid an increasingly risk-off moving market feel.
• To the downside, AUD/JPY eyes a test of its 50DMA at 75.50.

AUD/JPY is down over 1.0% on the day, or roughly 80 pips and has slid below the 76.00 level in recent trade, a more than 100 pip turn around from highs set on Wednesday of above 77.00.

Risk sensitive Aussie not liking risk-averse markets

Over the past few hours, markets have adopted an increasingly risk-off feel. The S&P 500 is heading into the US cash equity close with losses of nearly 1.5%, crude oil markets have erased earlier gains to trade in the red and developed market bonds have been picking up across the board; markets seem to be unwinding some of the post-Pfizer/BioNtech optimism that drove risk assets higher and havens lower earlier in the week.

As to why the mood has soured, no one headline can be pointed to, though the overriding feeling amongst analysts over the past day or two has overwhelmingly been one of caution, summarised by a fear that markets might be overlooking short-term risks to the outlook (namely presented by the worsening Covid-19 outbreak in Europe and particularly the US), in favour of the rosier long-term picture.

Indeed, pandemic news on Thursday out of the US has been resoundingly negative; a record 143k new cases were reported on Thursday, deaths are still high at nearly 1.5k and more states and cities are announcing a return of some form of lockdown restrictions (the latest domino to fall being Chicago, which announced a stay at home order which will take effect on 16 November and last 30 days). Fed Chair Powell added to the downbeat feeling, speaking at today’s annual ECB Sintra event, he signaled that though this week’s vaccine news was good, his overarching concern is still the worsening state of the pandemic and again called on Congress to implement more fiscal stimulus.

Amid risk-off conditions, as is typically the case in G10 FX markets, AUD is underperformance and JPY outperformance is being seen, meaning AUD/JPY is suffering badly.

AUD/JPY bears target 75.50

AUD/JPY has slipped further back from the more than one-month highs set on Wednesday this Thursday, with the pair now 100 pips down from this week’s highs of just above 77.00. To the downside, there is very little by way of support ahead of the 75.50 level, which happens to be where the pair’s 50-day moving average, as well as support in the form of the 3 and 5 November highs, are located.