Chart of the Week: Inflection Point in Aussie/Yen

The Australian Dollar / Japanese Yen (AUD/JPY) is one of the more useful global risk barometers, but as a non-US Dollar currency pair, it tends to get less attention than some of the more popular indicators of risk appetite. The Australian Dollar has long since been associated with the risk-on trade. Alternatively, the Japanese Yen has long been considered one of the top safe-haven assets around the world.

Earlier this month Paul Ciana was on Technical Analysis Radio discussing the currency pair which he refers to as a "turbo-charged USD/JPY." He described its relationship with markets as follows:

"When Aussie / Yen is going lower it usually means that Aussie is weakening so markets are flighting from risk because Aussie is the risk-on currency and Yen is the safe currency that doesn't really move."

Read more of what Ciana had to say about AUD/JPY and two other FX crosses that he considers good risk indicators in our blog post, "Three Currency Pairs Equity Investors Need to Know."

In the most general sense, a higher Australian Dollar represents cyclical economic growth and moves higher alongside equities and increasing risk tolerance. Meanwhile, the Yen offers stability with little growth and thus represents risk-off sentiment and generally moves in the opposite direction of equities. AUD/JPY turned down just ahead of most world equity markets this April. Both the All-Country World Index, $ACWI and AUD/JPY are down over 5% since their April highs. Considering the rough few weeks for both AUD/JPY and Global Equities, let's take a look at the long-term chart and see what it's signaling for investor risk behavior.
Price is currently at a major support level just above a number of key lows dating back almost 10-years. The last time AUD/JPY was below 75 was during the great financial crisis, and before that, the fallout from the tech bubble. I think it is safe to say that if prices break below this critical level to new decade-long lows, it will not be in an environment that is conducive to equities or risk appetite more broadly. Keep a close eye on this FX cross as which way it moves from here could be a big tell for stock markets around the world.