AUD/JPY: China credit crunch and US yields paint bullish picture
- The traditional correlation between US yields and USD/JPY has broken down somewhat in recent months but it does remain relevant. The sharp rise in US 10-year yields could be very bullish for USD/JPY.
- The credit crunch in China is increasingly looking like a well-orchestrated move by the PBOC to force a slowdown in risky lending and deflate any asset bubbles. This development will ease any panic and could be bullish for the AUD in the short-term, particularly in such an oversold market.
Ergo, double-whammy for AUD/JPY and the retracement could be underway (see chart).