AUD/JPY refreshes daily top after Chinese inflation and trade data, remains below mid-97.00s

• AUD/JPY catches fresh bids on Friday and reverses a part of the overnight retracement slide.
• Hopes for additional stimulus from China boosts the Aussie and lends support to the cross.
• Dovish BoJ expectations undermine the JPY, though geopolitical risks cap gains for spot prices.

The AUD/JPY cross attracts some dip-buying near the 100-hour Simple Moving Average (SMA), around the 97.00 mark, and climbs to a fresh daily peak following the release of Chinese inflation figures. Spot prices currently trade just below mid-97.00s, up nearly 0.20% for the day, reversing a part of the previous day's retracement slide from the highest level since December 4.

The National Bureau of Statistics reported that the Consumer Price Index (CPI) in China declined for the third consecutive month, by the 0.3% YoY rate in December. Adding to this, The Producer Price Index (PPI), which measures costs for goods at the factory gate, fell 2.7% YoY in December, marking the 15th straight month of drop. The data fuelled speculations that the government may announce additional stimulus to address deflationary risks.

Furthermore, China's Customs reported that the country's 2023 exports and imports of goods were better than expected, boosting the China-proxy Aussie and assisting the AUD/JPY cross to gain positive traction. In fact, China's 2023 Yuan-denominated exports rose by 0.6% YoY, signalling that global trade is starting to recover. However, imports were down 0.3% YoY, suggesting sluggish domestic demand and adding to worries about slow economic recovery.

Apart from this, geopolitical risks stemming from the Israel-Hamas war benefit the Japanese Yen's (JPY) relative safe-haven status and contribute to capping the AUD/JPY cross. Any meaningful downside, however, still seems elusive in the wake of expectations that the Bank of Japan (BoJ) is unlikely to pivot away from its ultra-dovish policy stance anytime soon in the wake of the government stimulus measures following a devastating earthquake in Japan.

The aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets around the AUD/JPY cross. Even from a technical perspective, spot prices have been oscillating in a familiar band over the past three weeks or so. This further makes it prudent to wait for a sustained breakout through the trading range before positioning for a firm near-term trajectory for spot prices.

Technical levels to watch