AUD/JPY retreats on market caution, stretches lower to near 97.30

• AUD/JPY halts its winning streak on cautious mood due to Middle East tension.
• The Middle East tension has escalated due to Israel’s conclusion of a series of strikes in southern Gaza.
• The Australian Dollar encountered challenges stemming from the decline in the Australian money market.

AUD/JPY snaps its four-day winning streak, which could be attributed to the market caution due to geopolitical conflict in the Middle East. The Japanese Yen (JPY) could have enjoyed the safe-haven status after Israel concluded a series of strikes in Gaza's southern city of Rafah. The AUD/JPY cross edges lower to near 97.30 during the Asian hours on Monday.

On Sunday, Israeli Prime Minister Binyamin Netanyahu expressed intentions to escalate the military operation there, but US President Joe Biden urged caution, insisting on a credible plan. Hamas also warned against a ground offensive in Rafah, fearing it could impact future hostage releases.

However, investor sentiment towards the Japanese Yen weakens as they perceive the Bank of Japan (BoJ) to adopt a cautious approach towards rate hikes following its departure from ultra-dovish monetary policy. BoJ Deputy Governor Shinichi Uchida's recent remarks suggest that the central bank is unlikely to pursue aggressive tightening, even after abandoning negative interest rates.

The increase in Chinese New Loans, reported on Friday, signifies a positive development for economic activities in China. This might have potentially offered support for the AUD/JPY pair. The close trade relations between China and Australia might have amplified this effect. However, with Chinese markets closed for the Lunar New Year holidays, the impact may be limited in the short term.

Meanwhile, the Australian Dollar (AUD) encountered challenges stemming from the decline in the Australian money market. Despite a record surge in United States (US) markets on Friday, the share market in Australia trended lower in early trading on Monday, constraining the Aussie Dollar's performance, which in turn, helped to undermine the AUD/JPY pair.