AUD/JPY remains volatile at around 95.00, odds soar for wider RBA-BOJ policy divergence

• AUD/JPY is displaying wild moves around 95.00 as RBA hogs the limelight.
• Investors should brace for a fourth consecutive 50 bps rate hike by the RBA.
• The Japanese yen has failed to capitalize on upbeat Retail Trade data.

The AUD/JPY pair is displaying topsy-turvy moves in a tad wider range of 94.77-95.20 in the Tokyo session. The asset has turned sideways as investors are awaiting the announcement of the monetary policy by the Reserve Bank of Australia (RBA), which is due next week. The cross is displaying sideways auction from the past two trading sessions despite the release of the downbeat Caixin Manufacturing PMI.

The economic data has been trimmed to 49.5 against the consensus of 50.2 and the prior release of 50.4. The Chinese economy is facing the headwinds of a resurgence in Covid-19 cases, and lockdown curbs by the Chinese administration have soared recession fears.

It is worth noting that Australia is a leading trading partner of China and dismal Chinese economic activities could put significant pressure on the aussie dollar.

Next week, the interest rate decision by the RBA may escalate the RBA-Bank of Japan (BOJ) policy divergence further. Considering the soaring price pressures in the Australian economy, RBA Governor Philip Lowe is expected to announce a fourth consecutive rate hike by 50 basis points (bps). An occurrence of the same will escalate the Official Cash Rate (OCR) to 2.35%.

Meanwhile, the Japanese economy is getting worried over costly imports due o broader weakness in the Japanese yen. The private sector is facing the headwinds of costly inputs, which are impacting their margins extremely. This week, the Japanese yen failed to capitalize on the upbeat Retail Trade data. The annual Retail Trade improved dramatically to 2.4% against the expectations of 1.9% and the prior release of 1.5%.