AUD/JPY edges higher to near 103.50 due to hawkish sentiment surrounding RBA

• AUD/JPY gains ground as RBA expects to increase policy rates if inflation doesn’t return to the 1%-3% range.
• The Australian Dollar gained support as Trade Surplus widened A$6,548 million (US$4,321.68 million) in May.
• Japan’s GDP Annualized showed that Japan’s economy contracted by 1.8% in Q1, against the expected decline of 2.0%.

AUD/JPY retraces its recent losses, trading around 103.50 during the European session on Monday. The Australian Dollar (AUD) gains ground due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Last week, RBA Governor Michele Bullock indicated that the central bank is prepared to increase interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%, according to NCA NewsWire.

The Australian Dollar gained support as market sentiment improved following the country’s Trade Balance release on Friday. Australia’s Trade Surplus widened to A$6,548 million (US$4,321.68 million) in May, surpassing the expected A$5,500 million and April's balance of A$5,024 million. This improvement can be attributed to a 7.2% month-on-month plunge in imports in May, reversing April’s 4.2% increase, while exports fell by 2.5% following a previous decline of 0.6%.

Meanwhile, China’s imports rose by 1.8% year-on-year to USD 219.73 billion in May, missing market estimates of a 4.2% increase and significantly down from April's 8.4% rise. Any change in China's economy could impact the Australian market due to the close trade relationship between the two countries.

In Japan, the mixed data released on Monday could limit the downside of the Japanese Yen. The Gross Domestic Product (GDP) Annualized showed that Japan’s economy contracted less than expected in the first quarter. Japan’s GDP Annualized contracted by 1.8% in the first quarter, compared to a previous decline of 2.0%, slightly exceeding market forecasts of a 1.9% decrease. Meanwhile, GDP (QoQ) shrank by 0.5%, matching the flash data.