AUD/JPY downtrend your friend as credit crunch looms
March 23 (Reuters) -The Australian dollar is trending lower against the Japanese yen and there is plenty of room below once the full impact of a credit crunch hits.
The U.S. Federal Reserve hiked rates 25 basis points Wednesday and toned down itshawkish rhetoric, noting "recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation."
The initial market reaction was positive on hopes theFed would shift from inflation-fighting to a more balanced approach. But that changed after Fed Chair Jerome Powell'snews conference showed he remains laser-focused on inflation, stating the Fed would only hold off further hikesif a tightening credit market did the job for them.
The U.S. ratesmarket's interpretation of Wednesday's Fed event was to price in an economic slowdown steep enough to force the Fed to cut rates as early as the July meeting- despite Powell indicating otherwise.
The Treasury market appears to see a credit crunch as a foregone conclusion, a view bolstered by Treasury SecretaryJanet Yellen ruling out"blanket insurance" for bank deposits.
A severe credit crunch in the U.S. would inevitably weigh on global growth, bring down yields and hurtdemand for risk assets. Thatwould encourage AUD/JPY selling.
AUD/JPY is trending lower with the five, 10 and 21-day moving averages aligned in a bearish formation. A break below support at a double-bottomaround 87.00 wouldopen the way to 83.69,the 38.2 Fibonacci retracement of the 2020-2022 rise.
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aud/jpyhttps://tmsnrt.rs/42CdOoP
aud/jpy 2https://tmsnrt.rs/40vNvz1
John Noonan is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai and Ewen Chew
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