AUD/JPY extends gains above 95.00 ahead of RBA policy

• AUD/JPY has refreshed its day’s high at 95.24 ahead of RBA’s monetary policy.
• It would be worth watching whether RBA will remain stick to 25 bps or return to a 50 bps structure.
• The Caixin Manufacturing PMI is seen higher despite a sheer drop in official manufacturing PMI.

The AUD/JPY pair has delivered an upside break of the immediate hurdle of 95.16 in the early Asian session. The asset is aiming higher ahead of the interest rate decision by the Reserve Bank of Australia (RBA).

The release of a significantly higher inflation rate for the second quarter in the Australian region has brought ambiguity in minds of investors regarding the extent of the rate hike by the RBA on Tuesday. In October monetary policy meeting, RBA Governor Philip Lowe slowed down the pace of hikes in the Official Cash Rate (OCR), citing that the economic prospects cannot be entirely sacrificed in achieving price stability.

The RBA announced a rate hike by 25 basis points (bps), terminating the 50 bps rate hike spell. Now, the inflation rate has delivered a historic surge after advancing to 7.3% vs. the expectation of 7.0%. This has accelerated chances that the RBA could return to a 50 bps rate hike structure to combat mounting price pressures.

Economists at ANZ Bank cited that “A 50 bps rise in November is possible, but we think the RBA will prefer to hike more frequently than shift back to 50 bps, given the reasoning behind the decision to go 25 bps in October.”

Apart from that, investors will also focus on the Caixin Manufacturing PMI data, being Australia a leading trading partner of China. The economic data is seen higher at 49.0 vs. the prior release of 48.1 despite a sheer drop in official manufacturing PMI data.

On the Tokyo front, investors are awaiting the release of the Bank of Japan (BOJ) monetary policy minutes on Wednesday. BOJ Governor Haruhiko Kuroda kept interest rates unchanged citing external demand shocks and the priority of achieving pre-pandemic growth levels.