AUD/JPY steadies near 94.00 as softer China inflation battles sluggish yields

• AUD/JPY fades bounce off intraday low after softer-than-expected China data.
• China CPI, PPI dropped below market forecasts in July, Japan PPI improved on YoY.
• Sluggish yields, cautious mood act as extra barriers to trading.
• US inflation data will be important for market players amid talks of the Fed’s aggression, economic slowdown.

AUD/JPY pays a little heed to softer China data on Wednesday, staying sidelined near 94.00 amid the mid-Asian session. The cross-currency pair’s inaction could be linked to the sluggish US Treasury yields amid the market’s cautious mood ahead of the US Consumer Price Index (CPI) for July.

China’s headline CPI eased to 2.7% YoY in July versus 2.9% expected and 2.5% prior. Further, the Producer Price Index (PPI) dropped to 4.2% compared to 8.0% market forecasts and 6.1% previous readings. Earlier in the day, Japan’s PPI for July matched 0.4% MoM forecasts but rose to 8.6% YoY versus 8.4% market consensus.

Elsewhere, the US 10-year Treasury yields struggle to extend the previous day’s rebound to 2.79%, around 2.786% by the press time. Also portraying the sluggish market is the S&P 500 Futures that remains unchanged at 4,125 at the latest, despite Wall Street’s losses.

It should be noted that the mixed data from Australia and China joined firmer yields to weigh on the AUD/JPY prices the previous day. That said, National Australia Bank’s Business Conditions and Business Confidence data for July printed upbeat results as the former rose to 20, versus 15 market consensus and 13 prior. Further, Business Confidence matched 7 forecasts while rising past 1 prior. On the contrary, Australia’s Westpac Consumer Confidence Index for August eased to 81.2, below 83.8 prior. Also, China marked a 20.1% YoY gain in passenger car sales during July, per china auto industry body CPCA.

On the other hand, MNI cited people familiar with the Japanese central bank's thinking to mention that the Bank of Japan (BOJ) expects prices to rise more quickly than officials had anticipated at their July meeting. “The jump in inflation to 3% or higher later this year, however, will not be enough to prompt any shift in its easy policy stance unless it feeds into an acceleration of wages next spring,” added MNI.

Elsewhere, the political uncertainty, suggesting Japanese Prime Minister Fumio Kishida’s readiness for shuffling the cabinet, also should have weighed on the JPY but did not. Finance Minister Shunichi Suzuki is likely to retain his position, per Reuters, which in turn flashes no major challenges for the Bank of Japan’s (BOJ) easy money policies. The same should keep the JPY bears hopeful.

Looking forward, AUD/JPY traders should pay attention to the risk headlines surrounding the economic slowdown in Europe, mainly due to the Russian halt of oil supplies. Also important to watch will be the chatters surrounding the BOJ’s next move and the US CPI data for July.

Technical analysis

AUD/JPY sellers need validation from the 50-DMA level surrounding 93.85 to extend the previous day’s losses. Until then, the looming bull cross on the MACD and firmer RSI favor the buyers to aim for the weekly top near 94.45.