AUD/JPY bears move in ahead of a critical RBA meeting

• AUD/JPY bears in charge at the start of the week.
• The markets are getting set for the RBA today. 

AUD/JPY is currently trading at 91.72 and down on the day by some 0.76% falling from a high of 92.59 to a low of 91.69. However, the Aussie has been broadly higher at the start of the week while the USD drifted lower overnight amid more weak US data and as investors weighed the likelihood that the Federal Reserve will not raise interest rates as aggressively as some had expected.

US manufacturing activity slowed less than expected in July. The manufacturing ISM fell to 52.8 (exp: 52.0, prev: 53.0) reflecting a sharp drop from the low 60s seen at the end of 202. The headline index is at a two-year low. However, the key report for investors this week will be the Nonfarm Payrolls report on Friday after the Federal raised the benchmark overnight interest rate by three-quarters of a percentage point. last week. The move came on top of a 75 basis points hike last month and smaller moves in May and March, in an effort by the US central bank to cool inflation. Nevertheless, US yields have fallen which is supporting the yen which was at its strongest vs. the greenback since mid-June. 

Domestically, the Reserve Bank of Australia Board is expected to signal it will “take further steps”:'' If the RBA delivers the expected 50bp rate hike, attention will swing to whether there are any substantive changes in the statement,'' analysts at ANZ Bank said.

''In particular, does it: still, describe the increase as a “further step in the withdrawal of the extraordinary monetary support” and repeat the Board’s expectation that it will “take further steps in the process of normalising monetary conditions”? The reference to extraordinary monetary support could be amended given that the cash rate is now well above its pre-pandemic level, while we expect the RBA to signal further hikes to come. The market will also be looking for any details about the RBA’s forecast update to be published on Friday.''

AUD/JPY daily chart

The price has left behind an M-formation following the bearish impulse that has run into an area of prior support. Should the bulls move in then a correction will be on the cards that could potentially mitigate the price imbalances along the bearish run on the way to 93.70s in a 50% mean reversion.

On the hourly chart, the 92.50s will first need to be clear: