AUD/JPY retreats from 96.00 ahead of RBA policy

• AUD/JPY falls back from 96.00 as investors remain cautious ahead of RBA policy.
• The RBA is expected to maintain a neutral stance on interest rates along with hawkish guidance.
• Caixin Manufacturing PMI missed estimates but remained below the 50.0 threshold in September.

The AUD/JPY pair faces selling pressure after a pullback move to near 96.00 in the European session. The risk barometer found offers as investors shift focus to the interest rate decision by the Reserve Bank of Australia (RBA), which will be announced on Tuesday.

According to a Reuters poll, the RBA is expected to keep interest rates unchanged at 4.10% but one more interest rate hike is expected by the year-end.

An interest rate hike of 25 basis points (bps) is expected in the remainder of 2023 as wages are expected to spike further after a large mandated increase in the minimum and award wages. Meanwhile, the monthly Consumer Price Index (CPI) in Australia accelerated to 5.2% in August from a 4.9% reading from July due to a rise in energy prices.

The impact of the rise in gasoline prices is seen as limited for consumer inflation but inflation above 5% would not be a cakewalk for RBA policymakers.

The Australian Dollar struggles for a firm footing as Caixin Manufacturing PMI for September missed estimates by a wide margin but managed to remain above the 50.0 threshold, released on the weekend. The economic data landed at 50.6 lower than estimates and the August reading of 51.2 and 51.0 respectively despite supportive measures from expansionary monetary policy by the People’s Bank of China (PBoC). The Australian Dollar, being a proxy for China’s economic growth, faces pressure against the Japanese Yen.

On the Japanese Yen front, risks of a stealth intervention by the Bank of Japan (BoJ) have elevated as Japan’s Chief Cabinet Secretary Hirokazu Matsuno reiterated on Monday, that he was “closely watching FX moves with a high sense of urgency.” He added that it is “important for currencies to move in a stable manner reflecting fundamentals.”