AUD/JPY corrects after rising to fresh multi-month high in reaction to RBA’s 25 bps lift-off

• AUD/JPY retreats sharply after rising to its highest level since June 19 on Tuesday.
• The RBA hikes its benchmark interest rate by 25 bps, as was widely anticipated.
• The announcement fails to impress the AUD bulls amid China’s economic woes.
• A softer risk tone benefits the safe-haven JPY and contributes to the intraday fall.

The AUD/JPY cross fades an intraday bullish spike to the 97.55-97.60 area, or its highest level since June 19 and drops to a fresh daily low after the Reserve Bank of Australia (RBA) announced its policy decision. Spot prices currently trade around the 97.00 round-figure mark, down nearly 0.30% for the day, for now, seem to have snapped a six-day winning streak.

The Australian Dollar (AUD) did get a minor lift after the RBA, as was widely anticipated, decided to hike the Official Cash Rate (OCR) by 25 bps, from 4.10% to 4.35% at the end of the November meeting. In the accompanying monetary policy statement, the central bank noted that further tightening of monetary policy will depend upon the data and the evolving assessment of risks. The RBA, meanwhile, now expects CPI to be around 3.5% by the end of 2024 and at the top of the target range of 2 to 3% by the end of 2025. This suggested that additional rate hikes might be off the table and prompts fresh selling around the AUD/JPY cross.

Apart from this, China’s economic woes, further fueled by a larger-than-expected fall in China’s trade balance data, turn out to be another factor weighing on the China-proxy Aussie. The General Administration of Customs reported that China’s trade surplus fell sharply from $77.71 billion to $56.53 billion in October – its worst level since May 2022 – amid an unexpected surge in imports. Meanwhile, a further decline in exports pointed to to worsening overseas demand. This, along with a softer risk tone, benefits the Japanese Yen’s (JPY) relative safe-haven status and contributes to driving flows away from the perceived riskier AUD.

Looking at the broader picture, Tuesday’s decline might still be categorized as a corrective pullback, especially after last week’s sharp rally of around 250 pips. Hence, it will be prudent to wait for strong follow-through selling before confirming that the AUD/JPY cross has topped out in the near term and positioning for any meaningful depreciating move.

Technical levels to watch