AUD/JPY retraces the 99.00 mark and above, upside potential appears limited

• AUD/JPY is steadily approaching a multi-week high reached on Wednesday.
• The RBA’s dovish stance and risk-positive tone continue to benefit the Aussie.
• Bets on another BoJ rate hike in 2024 should limit losses in the JPY and limit the crossover.

The AUD/JPY cross is drawing some buying relief during Thursday’s Asian session and is bouncing back above the 99.00 mark in the last hour, although it remains below a three-week peak reached the previous day.

The Australian dollar (AUD) continues to benefit from a dovish stance by the Reserve Bank of Australia (RBA). In fact, 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.

Moreover, the latest consumer inflation figures released on Wednesday showed that core CPI remains above the RBA’s 2-3% target range and is not enough to justify cutting rates in the short term. Meanwhile, the RBA’s half-yearly Financial Stability Review (FSR) showed that the risk of widespread financial stress remains contained. Additionally, a positive risk tone undercuts the Japanese yen (JPY) and benefits the risk-sensitive Aussie.

That said, growing acceptance that the Bank of Japan (BoJ) will raise interest rates again by the end of this year should help limit deeper JPY losses and keep a lid on the AUD/JPY cross. Bets were reaffirmed by the minutes of the BoJ meeting published today, which showed that board members shared a view on the need for vigilance against the risk of overshooting inflation and that it is appropriate to adjust the degree of support moderately monetary.

Even technically, the formation of a “Death Cross” on the daily chart – with the 50-day simple moving average (SMA) below the all-important 200-day SMA – calls for some caution for bullish traders. Any further move up is therefore more likely to face stiff resistance and remain capped near the psychological 100.00, or 200-day SMA, which should now act as a key point for the AUD cross /JPY.