Mitsubishi UFJ: Suggest going long on AUD/JPY as bets on Fed rate hikes cool down, boosting carry trades.

Mitsubishi UFJ analysts recommend going long on the Australian dollar against the Japanese yen, noting that the impact of intervention is fading, while traders are reducing bets on further interest rate hikes by the Federal Reserve, improving the environment for carry trades. "We expect AUD/JPY to continue to recover from the declines caused by the intervention, as there have not been substantial changes in the fundamentals to support a sustained appreciation of the yen," analysts Derek Halpenny, Lee Hardman, and Abdul-Ahad Lockhart wrote in the report. They set a target level for AUD/JPY at 114.50, with a stop-loss at 109.20. "The U.S. non-farm payroll report for July was weaker than expected, reducing market expectations for further rate hikes by the Federal Reserve, alleviating a major risk to financial market stability," they stated. "Therefore, the current environment remains favorable for carry trades, providing support for demand for high-yield G10 currencies like the Australian dollar."