AUD/JPY breaks 87.00 mark amid US authorities' efforts to address banking liquidity concerns

• AUD/JPY shows resilience amid banking liquidity challenges.
• Upcoming Australian and Japanese CPI releases are likely to frame the path for AUD/JPY.
• Essential to monitor credit default swaps in the global banking sectors. 

As the new week begins, the AUD/JPY pair is showing resilience, rising approximately 1% as of now and reflecting the risk-on mood triggered by US authorities' efforts to alleviate banking liquidity concerns.

The AUD/JPY has been under pressure since the Reserve Bank of Australia (RBA) hiked rates by 25 basis points (bps) in its last meeting. The market now expects no further hikes as the RBA minutes indicated a potential pause during the April policy meeting. This, along with the ongoing market turbulence due to the global banking liquidity crisis, has made it difficult for the pair to gain traction.

On Friday, the AUD/JPY experienced a setback as fresh developments surrounding Deutsche Bank's credit default swap reemergence led to a risk-off environment. Although no concrete information was available from the bank, panic began to spread.

Last week, heavy commentary from Federal Reserve (Fed) officials and the US Treasury Department demonstrated a willingness to intervene in the market if the liquidity crunch worsened. A rebound in US Treasury and peer debt yields, coupled with a partial easing of risk-off positioning, reduced the Yen's safe-haven premium, and Gold's allure also waned.

The Australian Consumer Price Index (CPI) for February is set to be released on Wednesday, with expectations of a slight decrease to 7.2% from January's 7.4%. The forecast range lies between 6.7% and 7.7%. Meanwhile, Core Tokyo CPI (Friday) is anticipated to ease to 3.1% from 3.3%, due to stabilizing energy prices and base effects. This release is considered a leading indicator of national metrics scheduled for release in the following weeks.

The AUD/JPY pair is likely to be influenced primarily by risk sentiment in the banking sector. As both the Australian and Japanese CPI releases draw near, market participants will closely monitor these indicators for potential impact on the currency pair. The ongoing efforts of global authorities, particularly the US, to address banking liquidity issues and stabilize financial markets will also play a crucial role in shaping the pair's performance.

Levels to watch