AUD/JPY dives to sub-95.00 levels on softer Australian CPI, recovers a few pips thereafter

• AUD/USD meets with heavy supply in reaction to softer Australian consumer inflation figures.
• The data pushes back against market bets for another RBA rate hike and weighs on the Aussie.
• The risk-on envirornment undermines the JPY and helps limit losses ahead of the BoJ meeting.

The AUD/JPY cross comes under intense selling pressure during the Asian session on Wednesday and moves further away from a nearly three-week high, around the 95.85 region touched the previous day. The downward trajectory picks up pace following the release of softer-than-expected Australian consumer inflation figures and drags spot prices below the 95.00 psychological mark, or a fresh daily low in the last hour.

The Australian Bureau of Statistics reported that the headline CPI rose 0.8% in the second quarter, missing estimates for a reading of 1% and well below the 1.4% previous. Over the past twelve months to June, the rise in consumer prices slowed to 5.4% from 5.6% in May. Furthermore, the Reserve Bank of Australia's (RBA) Trimmed Mean CPI slowed to 1% during the April-June period and the yearly rate decelerated from 6.6% to 5.9%, falling short of market expectations. The data pushes back against bets for another RBA rate hike in August and weighs heavily on the Australian Dollar (AUD), which, in turn, is seen as a key factor dragging the AUD/JPY cross sharply lower.

That said, the latest optimism led by expectations for more stimulus measures from China lends some support to the China-proxy Aussie. Meanwhile, growing acceptance that the Bank of Japan (BoJ) will stick to its dovish stance, along with the underlying bullish sentiment around the equity markets, undermines the safe-haven Japanese Yen (JPY). This, in turn, should help limit any meaningful downside for the AUD/JPY cross. Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the highly-anticipated two-day BoJ monetary policy meeting starting on Thursday. This, in turn, warrants some caution before positioning for further losses.

Technical levels to watch