AUD/JPY: CPI Data Boosts the Aussie; Yen Falls on BOJ Easing Speculations

The release of the CPI report by the Australian Bureau of Statistics showed Australia’s third quarter CPI beating market expectations, reducing speculations of a rate cut by the Reserve Bank of Australia. Consequently, the Aussie gained versus the Japanese yen in the previous Asian trading session. The Samurai also came under pressure on bets that the Bank of Japan would move for more monetary easing at its meeting at the end of this month. In today’s Asian exchanges, the Aussie is expected to grind higher on dampened expectations of a rate cut and signs that China’s manufacturing sector is recovering.

Consumer prices in the September quarter rose by 1.4 percent, following its increase in the June quarter by 0.5 percent, due to the sharp rises in gas and electricity prices after the introduction of the carbon tax in July. The Aussie is likely to remain solid as the better-than-expected CPI report lessened speculations that the RBA would move to cut interest rates in November. Improvement in the Chinese manufacturing sector is also seen to boost the Aussie, China being Australia’s single largest export market. According to data by Markit, the HSBC Flash Manufacturing PMI in October rose to 49.1 points, from a revised reading of 47.9 points in September. Manufacturing activity in China has been showing signs of recovery in the past two months, indicating that the world’s second largest economy is rising from a slump. As the Aussie is sensitive to Chinese economic fundamentals, the better-than-expected Chinese manufacturing data is expected to support it in today’s Asian trades.

In Japan, speculations that the BOJ would add expand monetary stimulus is seen to weigh on the Samurai. Japan’s exports slid by 10.3 percent in September due to the global economic slowdown and the territorial dispute with China over the Senkaku Islands. The BOJ expanded its asset purchases by 10 Trillion Yen On September 19 and another move towards monetary expansion is seen to hurt the Yen. Given all the foregoing factors, a long position for the Aussie-Yen pair is recommended in today’s Asian trades.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.