AUD/JPY surrenders quick gains and drops below 91.00 despite Australian Inflation soars

• AUD/JPY displayed wild movements after the release of Australian inflation data.
• Monthly Australian inflation soared to 6.8% vs. the estimates of 6.4%.
• Weak Chinese factory activity for May has weighed immense pressure on the Australian Dollar.

The AUD/JPY pair has surrendered quick gains made after the release of the higher-than-anticipated monthly Australian Consumer Price Index (CPI). The risk barometer has dropped below 91.00 and is expected to remain vulnerable ahead.

Australia’s monthly inflation (April) has accelerated to 6.8% while the street was anticipating a marginal rebound to 6.4% from the former release of 6.3%. This could be the reason why the Reserve Bank of Australia (RBA) decided to raise interest rates surprisingly by 25 basis points (bps) to 3.85% in the May monetary policy meeting.

Considering a strong rebound in Australian inflation despite stagnant retail demand, higher interest rates, and anticipation of weak economic prospects as cited by RBA policymakers earlier, a hawkish interest rate stance is expected from RBA Governor Philip Lowe in June’s monetary policy meeting next week.

Meanwhile, weak Chinese factory activity for May is also weighing pressure on the Australian Dollar. China’s National Bureau of Statistics (NBS) has reported Manufacturing PMI at 48.8, lower than the estimates of 49.4 and the former release of 49.2. While Non-Manufacturing PMI jumped to 54.5 from the consensus of 50.7 but remained lower than the former figure of 56.4. It is worth noting that Australia is the leading trading partner of China and weak manufacturing activities in China impact the Australian Dollar.

The Japanese Yen has got some strength after Bank of Japan (BoJ) Governor Kazuo Ueda’s commentary. BoJ Ueda cited that an increase in inflationary pressures have been caused by supply factors such as a rapid rise in commodity prices, labor shortages, and disruptions to supply chains. On Tuesday, BoJ Ueda stated that the central bank will continue its bond-buying operations to keep inflation steadily above 2%.