AUD/JPY reverses to upper 81.00s from earlier post-RBA sub-81.00 session lows

• AUD/JPY has reversed sharply higher from its post-RBA lows beneath the 81.00 level to trade in the 81.75 area.
• Attention now turns to an upcoming speech from RBA Governor Philip Lowe at 0130GMT on Wednesday.

AUD/JPY has reversed sharply higher from its post-RBA lows beneath the 81.00 level to trade in the 81.75 area, up roughly 0.5% on the day. The central bank meeting was initially interpreted as dovish given the RBA stuck to its pledge that it would be patient with regard to rate hikes. But a sizeable upwards revision to the bank’s inflation forecasts and a dropping of the reference to rates remaining on hold to at least late 2023 suggests the door has been opened to rate hikes later this year if necessary. As a result, a few local Aussie banks stuck with the H2 2022 first-rate hike calls in wake of the meeting.

Attention now turns to an upcoming speech from RBA Governor Philip Lowe at 0130GMT on Wednesday. If AUD/JPY can rally beyond last Thursday’s highs in the 81.70 area, a move towards the 82.00 level and last week’s highs is on the cards. Against the backdrop of a continued recovery in global equity markets with torrid January trading conditions in the rear-view mirror, the stage may even be set for a more protracted AUD/JPY rebound back towards the 200-day moving average in the mid-82.00s.

Whether that recovery in equities can continue in the coming weeks will depend to a large extent on US data, with the Fed emphasising its data-dependent approach to determining the speed of policy tightening in 2022. The AUD/JPY bulls will be hoping for Friday’s US labour market data and January inflation data out later in the month to ease concerns about wage and cost of living pressures, thus reducing the likelihood of a 50bps March rate hike. A slower pace of Fed tightening in 2022 is seen as better for broad macro risk appetite.