• AUD/JPY surged towards year-to-date highs on Tuesday post-the RBA’s hawkish announcement but fell short of breaching last week’s 94.32 peak.
• Profit-taking triggered by a mild bought of risk-off on Wall Street has seen the pair pullback to near 93.70.
• But the broader long-term fundamentals continue to look positive for the pair.

AUD/JPY surged towards year-to-date highs above the 94.00 level on Tuesday, the Aussie bulls spurred by a hawkish shift in the RBA’s rate guidance language at its latest policy announcement, though the pair has since pulled back somewhat. AUD/JPY was last trading in the 93.70 region, still up about 1.2% on the day and taking its rebound from last Thursday’s sub-91.00 lows to more than 3.0%, but about 40 pips below earlier session highs in at 94.166.

Risk appetite took a turn for the worse during US trading hours despite strong US ISM Services PMI data amid worries about tougher Western sanctions on Russia and following surprisingly hawkish remarks from Fed Vice Chair Lael Brainard. The drop in US equities contributed to a bought of profit-taking in the risk-sensitive Aussie, and it looks like the bulls hoping for fresh multi-year highs are going to have to wait.

But against the backdrop of an increasingly hawkish RBA, on balance resilient global equity markets, generally rising global yields and what economists have described as “structurally higher” commodity prices, AUD/JPY’s rally may yet have room to run. A break above last week’s highs at 94.32 may be imminent (this week?), in which case, the Q2 2015 highs in the 97.00s would come into play.