AUD/JPY retreats towards 95.00 despite RBA’s 50 bps rate hike, firmer yields

• AUD/JPY struggles to extend the four-day uptrend, eases from daily top of late.
• RBA matches market forecasts while announcing the fourth rate hikes worth 0.50%.
• US Treasury yields begin the week’s trading on a firmer footing amid easing hawkish Fed bets, stimulus hopes.

AUD/JPY takes offers to refresh the daily low near 95.50 after the Reserve Bank of Australia’s (RBA) monetary policy announcements on early Tuesday morning in Europe. The cross-currency pair’s latest declines ignore the RBA’s rate hike, as well as firmer Treasury yields.

That said, the RBA announces the consecutive fourth rate increase worth 50 basis points, to 2.35%, while matching market forecasts. The RBA statement also mentioned that the board is committed to doing what is necessary to ensure inflation returns to target.

Also read: RBA: Board is committed to doing what is necessary to ensure inflation returns to target

Even so, the market players failed to buy the Australian dollar as the recently announced rate hike seems widely anticipated and already priced in. Also likely to challenge the AUD/JPY buyers could be the sluggish moves in Aussie equity markets and fears of cooling household spending in Australia.

On the other hand, verbal intervention from Japanese policymakers seems to defend the yen buyers of late. Recently, Japanese Finance Minister Shunichi Suzuki said on Tuesday that “I have the impression that recent forex moves are becoming more significant.”

Furthermore, the risk-on mood also underpins the bullish bias on the AUD/JPY front. While portraying the mood, the US 10-year Treasury yields rise 2.5 basis points (bps) to 3.21% whereas the S&P 500 Futures extend the week-start recovery to 3,943, up 0.50% intraday by the press time. Further, the market’s consolidation also allowed the DXY to retreat from the 20-year high to 109.37, before a recent rebound to 109.62.

Market sentiment improved during the early Asian session after the return of full markets brought expectations of more measures to tame the energy crisis. That said, the incoming UK PM Liz Truss is up for a £130 billion energy plan while the People’s Bank of China (PBOC) cuts the Reserve Requirement Ratio (RRR). Further, politicians from Germany/Eurozone are all in to battle with the recession woes with a heavy push to defend energy companies and stock for winters.

Moving on, AUD/JPY traders should pay attention to the market sentiment and yields while closely observing the full markets’ reaction to the latest chatters surrounding stimulus, receding hawkish central bank bias.

Technical analysis

An upward sloping support line from the mid-August, around 95.30 by the press time, directs AUD/JPY bulls towards the resistance line of an 11-week-old bullish channel, close to 96.55.