AUD/JPY extends recovery beyond 91.00 on better-than-forecast Aussie Retail Sales, RBA in focus

• AUD/JPY picks up bids to refresh intraday high, extends bounce off two-week low.
• Australia Q4 Retail Sales contract less than expected, second-tier data arrive upbeat.
• Sour sentiment exerts downside pressure on the risk-barometer pair.
• Chatters surrounding the next BoJ leader, risk catalysts will be eyed directives ahead of RBA.

AUD/JPY renews an intraday high near 91.40 as Australia Retail Sales dropped less than forecast in the fourth quarter (Q4). Adding strength to the recovery moves could be the broad Japanese Yen (JPY) weakness due to the firmer US Treasury bond yields. However, challenges to sentiment probe the cross-currency pair traders ahead of Tuesday’s Reserve Bank of Australia (RBA) Monetary Policy meeting.

Australia’s fourth quarter (Q4) Retail Sales dropped 0.2% QoQ versus -0.6% expected and prior increase of 0.2%. Earlier in the day, TD Securities Inflation for the nation rose to 0.9% MoM from 0.2% prior, as well as to 6.4% YoY versus 5.9% previous readouts, during January.

Elsewhere, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022. The underlying reason for the same could be linked to the firmer US employment and activities data.

Alternatively, talks surrounding the Bank of Japan’s (BoJ) next Governor and recent fears surrounding the US and China ahead of this week’s US diplomat visit to Beijing seem to challenge the risk profile and the AUD/JPY pair buyers.

Recently, Japanese media highlighted the odds of BoJ Deputy Governor Masayoshi Amamiya being the next leader of the Japanese central bank. However, Japan's Finance Minister Shunichi Suzuki mentioned that he has been “out of the loop” on the BoJ nomination. Also, Japan’s Jiji News stated that BoJ’s Amamiya turned down requests to respond on the chatters for him to be the next BoJ Governor. It should be observed that the talks are more important nowadays as Japan witnesses higher inflation and the end of ultra-easy monetary policy is being discussed. Hence, a hawkish leader could propel the JPY.

On a different page, Reuters mentioned that a US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina on Saturday, a week after it first entered US airspace and triggered a dramatic -- and public -- spying saga that worsened Sino-US relations.

It’s worth noting that the S&P 500 Futures print mild losses and the stocks in the Asia-Pacific region are mildly offered to portray the sour sentiment.

Looking forward, AUD/JPY traders may witness a lackluster day ahead of Tuesday’s RBA monetary policy updates. However, the risk catalysts may entertain cross-currency pair traders.

The latest Aussie inflation numbers have been hawkish but the employment data haven’t been in support of aggressive RBA action, which in turn probes AUD/JPY bulls. Even so, Bloomberg said, “Australia’s central bank is all but certain to increase interest rates at its first meeting of the year, with some observers pointing to the risk of a resumption of outsized moves to counter a surprising surge in inflation.”

Technical analysis

A daily closing beyond the 200-day Exponential Moving Average (EMA), around 91.60 by the press time, becomes necessary for the AUD/JPY bulls to retake control.