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AUD/JPY tumbles with yuan as volatility surges

By :   David Scutt , Market Analyst
April 9, 2025 1:09 AM
  • AUD/JPY correlations with risk assets near extremes
  • Yuan at record lows ahead of fresh U.S. tariffs
  • Key support at 86.05 in focus with downside risks

AUD/JPY: Tariff Sentiment Proxy

AUD/JPY is arguably the cleanest market instrument to get a sense on prevailing sentiment towards the U.S. trade war with China, exhibiting extremely strong relationships with both the Chinese yuan, riskier asset classes, and measures of market volatility. You can see that in the right-hand pane below, revealing the rolling 20-day correlation between AUD/JPY with USD/CNH in blue, S&P 500 futures in red, expected 30-day volatility in U.S. Treasuries in yellow, and VIX futures in black. All relationships sit at extreme positive or negative levels, underlining why AUD/JPY is essentially a proxy for everything that’s going on.

Given recent developments—including the looming introduction of 104% U.S. tariffs on Chinese imports and the offshore Chinese yuan falling to the weakest level on record ahead of their introduction—it comes as no surprise that AUD/JPY is crumbling, threatening to take out the lows set earlier this week. Risk appetite is nowhere to be seen.

AUD/JPY Technical Analysis

Source: TradingView

What is remarkable is that AUD/JPY is still being respectful of long-standing technical levels despite the chaotic moves we’ve seen, with a rebound earlier this week stalling at former support at 90.27. A similar bullish thrust on Tuesday also stalled around this level.

Should AUD/JPY continue to behave as a risk proxy while remaining respectful of former levels, it provides a blueprint for traders to assess potential setups when they present themselves.

A clean break of 86.05 opens the path for a run towards 84.00, with 80.50, 78.80, and 77.90 other downside levels of note. In a dysfunctional market, any of those levels could potentially be in play. On the topside, 90.27 and 91.86 are levels to keep on the radar.

-- Written by David Scutt

Follow David on Twitter @scutty

 

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