AUD/JPY ranges in mid-82.00s ahead of key Aussie jobs data

• AUD/JPY spent Wednesday ranging in the mid-82.00s as focus switched to Thursday’s Aussie labour market report.
• Higher base metal prices and resilient January Consumer Sentiment figures from Westpac helped the Aussie outperform on the session.

In the run-up to key Aussie labour market data, AUD/JPY spent Wednesday’s session ranging in the mid-82.00s, bouncing at last Friday’s 82.10 lows but then subsequently failing to sustain an attempted push above the 200-day moving average at 82.62. At current levels just under 82.50, the pair trades with modest gains of about 0.1% on the session. Strength in base metals, as well as resilient January Consumer Sentiment figures from Westpac, helped the Aussie to claim the top spot in the G10 performance table on the day.

Markets expect the Australian economy to have added slightly more than 40K jobs in December, taking the unemployment rate down to 4.5% from 4.6% and lifting the participation rate to 66.2% from 66.1%. Strong labour market figures would likely further stoke already very hawkish RBA rate expectations. On Wednesday, money market futures implied a 77% chance that the RBA lifts rates to 0.25% in May and then follow that up with a further four rate hikes before the end of the year, taking rates to 1.25%. That despite the fact that the RBA has up until now maintained there will be no rate hikes before 2023.

Analysts suspect that the final straw for the RBA that could make them capitulate to market expectations and signal 2022 rate hikes could be if next week’s Q4 Consumer Price Inflation figures surprise to the upside. If so, the central bank may opt to axe its QE programme immediately in February and signal rate hikes this year. One might expect that could send AUD/JPY back towards recent highs in the 84.00 area, but risk appetite (in global equities, anyway) remains ropey amid Fed tightening fears. The S&P 500 dropped another 1.0% on Friday and is nearly 6.0% below record highs printed at the start of the year. This makes it difficult for the risk-sensitive AUD to rally versus the safe-haven JPY. Analysts have warned that stock market sentiment may remain rocky in the run-up to next week’s Fed meeting and this may cap potential AUD/JPY gains.