BofA FX strategists have issued a recommendation to buy AUD/JPY, with a spot reference of 92.80, setting a target of 100 and a stop loss at 89.50.
The firm expresses a tactical bullish stance on the currency pair, anticipating that the Upper House elections in Japan and an expected pause in rate hikes by the Reserve Bank of Australia (RBA) in July will serve as catalysts for an upward movement.
The analysts note that valuations for the Australian dollar appear too low while those for the Japanese yen seem too high, suggesting that the current levels are stretched. This imbalance is seen as an opportunity for the AUD/JPY pair to appreciate in value.
However, BofA acknowledges a significant risk to their recommended trade, which is the high correlation of AUD/JPY with the S&P 500. As detailed in their analysis, a policy-driven sell-off in global stocks could negatively impact the currency pair. Despite this concern, BofA has placed the stop loss below the 90 level to manage the risk associated with potential volatility in the stock market.
