AUD/JPY drops to near 87.80 as monthly Australian inflation softens to 6.8%

• AUD/JPY has dropped sharply to near 87.80 as Australian inflation has softened further to 6.8%.
• The collaborative effect of weaker Retail Sales and softening price index would support the RBA in keeping policy unchanged.
• BoJ Kuroda remained extremely dovish for further monetary policy as the sustainable inflation target has not been met yet.

The AUD/JPY pair has slipped firmly to near 87.80 as the Australian Bureau of Statistics has reported further softening in the monthly Consumer Price Index (CPI) (Feb). The economic data has landed at 6.9%, lower than the consensus of 7.1% and the former release of 7.4%.

On Tuesday, Australian Retail Sales expanded by 0.2%, lower than the consensus of 0.4% and the former release of 1.9%. A weaker-than-expected retail demand indicates that households are bearing the burden of higher inflation and are facing issues in offsetting the impact of inflated products with current paying capacity.

The collaborative effect of weaker Retail Sales and softening price index would support the Reserve Bank of Australia (RBA) in keeping monetary policy unchanged in its April meeting. Investors should be aware of the fact that RBA Governor Philip Lowe has already pushed its Official Cash Rate (OCR) to 3.60% in March.

Going forward, China’s Bureau of Statistics will report Manufacturing and Non-Manufacturing PMI data on Friday. A decent performance is expected by the market participants as the Chinese economy is promoting growth through monetary measures after dismantling pandemic controls. It is worth noting that Australia is the leading trading partner of China and accelerating economic activities in China will also support the Australian Dollar.

On the Japanese Yen front, the ex-bank of Japan Governor Haruhiko Kuroda remained extremely dovish for further monetary policy as the sustainable inflation target has not been met yet. He further added, “It is premature to debate an exit from easy monetary policy.” And, “More time is needed to stably and sustainably hit the price target.”