AUD/JPY clocks one-month high, yield differential widens

AUD/JPY clocked a one-month high of 89.07 this Monday morning in Asia as Yen dropped on Abe's victory in snap elections.

Yield differential ticks higher

The spread or the difference between the Australia 10-year government bond yield and the Japanese government bond yield ticked higher to 275 basis points (bps) from Friday's level of 271 bps. The recent low is 266 bps.

The uptick in the yield differential adds credence to the AUD/JPY rally, however, geopolitical tensions may spoilsport.

UK media reported earlier today that US is preparing for nuclear war readiness. Meanwhile, a constitutional crisis in Spain seems to have worsened. Thus, the Yen may find bids, especially if the equity markets react negatively to the geopolitical risks.

AUD/JPY Technical Levels

Currently, the cross trades at 88.96, having clocked a daily high of 89.07 and low of 88.87. A break above 89.07 (session high) would open up upside towards 89.42 (July 27 high), above which a major resistance is lined up at 90.30 (Sep 21 high).

On the other hand, a break below 88.74 (Oct 5 high) would expose support at 88.59 (5-DMA) and 88.20 (10-DMA).