AUD/JPY plummets below 92.50 as anti-Covid lockdown protests in China intensify

• AUD/JPY has fallen like a house of cards to near 92.50 as protests against Covid-19 restrictions in China worsen.
• Individuals in China are demanding democracy over dictatorship.
• A de-growth in Australian Retail Sales has joined China’s civil protests in hammering the Aussie dollar.

The AUD/JPY pair has witnessed an intense sell-off by the market participants as households’ protests in China against Covid-19 restrictions imposed by Chinese authorities have escalated. The risk barometer has fallen like a house of cards to near 92.50 after a gap-down opening to near 93.60.

Individuals in a state of anger and frustration have come out on the roads as the Chinese administration was forced to roll back lockdown measures to contain the Coronavirus spread. The economy recorded the highest number of Covid-19 cases on November 26 at around 40,000. The general public is flaring red flags for the government, shouting slogans of ‘Xi Jinping goes down and demanding democracy against dictatorship.

Escalating fears of civil risk are posing uncertainty for economic projections. China’s economy is already facing vulnerable economic growth and now civil protests will worsen the situation further. This has ignited a risk-off profile in the global markets. It is worth noting that Australia is a leading trading partner of China and China’s weaker economic prospects could have a significant impact on the Aussie dollar.

Meanwhile, de-growth in Australian retail sales data has also weakened the Aussie dollar.  The economic data landed in negative territory at 0.2% vs. the consensus of 0.4% growth and the prior release of 0.6%. A slowdown in retail demand could cheer Reserve Bank of Australia (RBA) policymakers as it might cool down inflationary pressures ahead.

Going forward, Australian monthly Consumer Price Index (CPI) data will remain in focus. The economic data is seen higher at 7.5% vs. the prior release of 7.3%. This might force the RBA chair Philip Lowe to reconsider the decision to a shift to lower rate hike structure.

On the Japanese yen front, Japanese Prime Minister Fumio Kishida said on Monday, “It is critical for the government and the Bank of Japan (BOJ) to collaborate closely and respond flexibly in order to achieve long-term, stable inflation.” Inflationary pressures in Tokyo have shown strength after months of yen weakness and elevated energy costs, as reported by Bloomberg. The headline Consumer Price Index (CPI) in Tokyo escalated to 3.8% vs. the consensus of 3.6%. While core CPI jumped to 2.5% against the projections of 2.1%.