AUD/JPY holds modest gains near multi-week high, remains below 99.00

• AUD/JPY is attracting some trailing buyers and reacting a bit to Australian inflation numbers.
• Headline CPI fell to 2.7% y-o-y in August, while core CPI remains above the RBA’s target.
• Bets on another BoJ rate hike in 2024 to limit losses in JPY and keep a lid on the currency pair.

AUD/JPY is trading in a positive trend during the Asian session on Wednesday and is currently placed just below the 99.00 mark, or above a three-week peak reached the previous day. The mixed fundamental backdrop, meanwhile, calls for some caution for bullish traders and before positioning for an extension of the recent upward trajectory seen over the past two weeks or so.

Amid bets for more aggressive policy easing by the Federal Reserve (Fed), China’s new stimulus measures to support the faltering economy are fueling investor appetite for riskier assets. This is evident from the prevailing bullish mood in global equity markets, which is seen undermining the Japanese Yen (JPY) and benefiting the risk-sensitive Aussie. Apart from this, the Reserve Bank of Australia’s (RBA) dovish stance is acting as a tailwind for the AUD/JPY cross.

Australia’s central bank reiterated on Tuesday that policy will need to be tight until confidence returns that inflation is moving sustainably towards the target range. In addition, RBA Governor Michele Bullock said recent data had not materially influenced the policy outlook. That said, official data released earlier today showed Australia’s consumer price inflation (CPI) fell in August to the lowest level since the start of 2022 due to state government cuts.

In fact, the Australian Bureau of Statistics reported that headline CPI rose at an annual pace of 2.7% in August, down sharply from 3.5% in July. Meanwhile, core CPI decelerated to 3.4% YoY from 3.8%, although it remains above the RBA’s 2-3% target range and is not enough to justify cutting rates in the near term. However, expectations that the Bank of Japan (BoJ) will raise interest rates again by the end of this year are limiting the JPY’s losses and should limit any further gains for the AUD/JPY cross.

Investors are now eagerly awaiting the release of the minutes of the BoJ meeting on Thursday, which, together with broader risk sentiment, will boost demand for the JPY and provide fresh impetus to the AUD/JPY exchange. From a technical perspective, a sustained move above the 50-day simple moving average (SMA) could be seen as a new trigger for bullish traders. That said, any further upside is likely to remain capped near the psychological level of 100.00, representing the 200-day SMA.