• AUD/JPY rallied on Tuesday as the Aussie benefitted from risk-on flows, rising commodity prices and strong domestic data.
• The pair hit fresh weekly highs at 93.80 and bulls are eyeing a test of annual highs above 94.00.

A significant improvement in the market’s appetite for risk which has seen US and global equity markets turn higher in wake of the latest not as hot as feared US inflation figures has given the Aussie in recent trade. AUD/JPY recently pushed to a fresh weekly high to the north of Monday’s highs in the 93.60s to briefly touch 93.80.

At current levels in the 93.60s, it trades with gains of around 0.7%, having already seen a healthy rebound from earlier session sub-93.00 lows, with the Aussie benefitting from strength across global commodity markets and in the afterglow of strong business survey data released during the Asia Pacific session.

For reference, NAB’s Business Conditions index in March jumped to 18 from 9 in February, its highest since July 2021, while the Business Confidence index rose to 16 from 13. The improvement in risk appetite and upside in commodity prices has got some bulls eyeing a breakout above recent highs just above 94.00.

Indeed, looking at AUD/JPY price action over the last few weeks, it does seem to be forming an ascending triangle, which typically signals an upcoming bullish breakout. But a downturn in yields in the US in wake of the latest inflation report is offering the yen some respite.

For AUD/JPY to break above 94.00 and hit fresh year-to-date highs, yields may have to regain some of their recent upside bias, alongside a continuation of the current more risk-friendly flows in equities and commodities. Domestic Australian fundamentals could also be a catalyst for upside; the March labour market report is out during Thursday’s Asia Pacific session and, if sufficiently strong, could further boost conviction that the RBA will begin hiking by the end of H2 2022.