March 21, 2022 8:54:11

Pro-cyclical currencies have been on a tear recently as commodities have raced higher on the Ukraine conflict. Prices of all sorts of metals and agricultural commodities are expected to remain elevated for a prolonged period.

The aussie has been bid on rebounding iron ore prices and markets pricing in RBA rate hikes, helped by strong recent economic data. Low exposure to the Ukraine crisis has also obviously helped.

The trend has been seen most clearly versus the yen. The Japanese currency has been hit by the more positive risk mood and a still very dovish central bank. The country is also a net importer of energy so is suffering in the current climate. This may go on with high oil prices.

AUD/JPY spikes up to long-term resistance

This is a classic risk on/risk off pair which traditionally tracks equity moves. But the commodity melt-up has fuelled a strong recent surge to multi-year highs.

Prices have been on an upward path since the end of January. They touched long-term trendline support around 80.36 and tracked sideways for most of February around the long-term SMAs.

This month has seen strong bullish momentum with prices breaking higher, initially through the year-to-date high at 84.30. The pair surged north at the end of last week pushing through the upper Keltner channel. The daily and weekly RSI are now also in overbought territory above 70.

This can go on for some time, but a pullback is due. The February 2017 high at 88.17 is initial resistance. The January 2018 top is next at 89.07 with the September 2017 peak at 90.30. A deeper retracement might take us back to the first Fib level which is around the October 2021 high at 86.25.