AUD/JPY remains sideways below 92.00 despite Aussie PMI softens

• AUD/JPY has remained muted around 91.80 despite softening of the Australian PMI.
• Australia’s Manufacturing PMI has contracted consecutive for the seventh month to 49.8.
• Further appreciation in the Japanese Yen looks possible on an exit from BoJ’s expansionary policy.

The AUD/JPY pair has continued to remain sideways around 91.80 despite the release of the downbeat Australian S&P500 PMI data. Manufacturing PMI has trimmed consecutively for the seven-month to 49.8 while the street was expected an expansion to 50.3. Also, the Services PMI has dropped vigorously to 48.3 from the consensus of 49.7.

Rising interest rates by the Reserve Bank of Australia (RBA) in its fight against stubborn inflation are leading to a contraction in economic activities. The absence of easy money for firms to execute investment and expansion plans along with bleak economic demand has trimmed the scale of economic activities.

Australian economic activities could recover ahead as China is on the path of recovery now after dismantling Covid-inspired lockdown curbs. According to a note from JPMorgan, Australia’s economy could be no small beneficiary of an end to China’s zero-Covid policy over the next two years. Also, China’s reopening could boost Australia’s economy by 1%.

Going forward, the risk barometer will dance to the tunes of the Australian Consumer Price Index (CPI) data for the fourth quarter of CY2022. As per the consensus, the annual CPI is expected to escalate marginally to 7.5% from the prior release of 7.3%. While monthly inflation is seen sharply higher at 7.7% from the former release of 7.3%.

Australian Treasurer Jim Chalmers cited that the worst part of the country's inflation crisis was over. He believes "The Australian economy will begin to soften a bit this year and that is the inevitable likely consequence of higher interest rates and a slowing global economy.”

On the Tokyo front, chatters over Bank of Japan (BoJ) Governor Haruhiko Kuroda’s successor is hogging the limelight. Analysts at Commerzbank believe that criticism of Kuroda’s expansionary monetary policy by the succession might result in further appreciation in the Japanese Yen. BoJ officials see difficulties in keeping inflation levels above 2% for a longer period despite gradually escalating CPI in Japan’s region.