AUD/JPY refreshes weekly top after Chinese inflation, eyes 97.00 amid positive risk tone

• AUD/JPY gains positive traction for the third straight day and climbs to a fresh weekly peak.
• RBA’s warning of more rate hikes and China’s steps to stabilize markets underpin the Aussie.
• A positive risk tone weighs on the safe-haven JPY and remains supportive of the momentum.

The AUD/JPY cross attracts some buying for the third successive day and rallies to a fresh weekly top, around the 96.85 region during the Asian session on Thursday. Spot prices, however, remain well within a multi-day-old trading range, warranting some caution before positioning for an extension of the recent recovery from mid-95.00s, or the monthly trough touched last week.

The Australian Dollar (AUD) continues to be underpinned by the Reserve Bank of Australia's (RBA) hawkish outlook earlier this week, warning that a further rate increase could not be ruled out in the wake of still sticky inflation. Adding to this, China's steps to shore up its battered stock market help offset underwhelming domestic inflation figures and lend additional support to the China-proxy Aussie.

Data from the National Bureau of Statistics showed that China’s Consumer Price Index (CPI) climbed 0.3% over the month in January and declined 0.8% on a yearly basis, both missing expectations for a 0.4% rise and 0.5% fall, respectively. Meanwhile, the Producer Price Index (PPI) came in slightly better than anticipated and fell by the 2.5% YoY rate in January, though does little to ease deflationary concerns.

Meanwhile, the prevalent risk-on mood is seen denting demand for the safe-haven Japanese Yen (JPY), which is further weighed down by less hawkish remarks by the Bank of Japan (BoJ) Deputy Governor Uchida Shinichi. Speaking at a Meeting with Local Leaders in Nara, Uchida said that the BoJ would like to maintain a stable, accommodative monetary environment as the uncertainty over the outlook remains high.

Uchida, meanwhile, expects Japan's economic recovery to continue and the positive wage-inflation cycle to strengthen, while echoing the BoJ's view that the likelihood of sustainably achieving price target is gradually heightening. Furthermore, investors seem convinced that wage growth this year may outpace that of 2023 and pave the way for the BoJ to exit its decade-long ultra-loose monetary policy setting.

This, in turn, should limit any meaningful depreciating move for the JPY and cap gains for the AUD/JPY cross. Nevertheless, the aforementioned fundamental backdrop seems tilted in favour of bullish traders and supports prospects for a further intraday appreciating move for spot prices.

Technical levels to watch