AUD/JPY struggles to extend recovery above 98.00 ahead of Aussie Employment

• AUD/JPY’s upside appears to have stalled near 98.00 ahead of the Australian labor market data for July.
• Fading global risk-aversion has weighed on the Japanese Yen.
• The BoJ is expected to raise its interest rates to 1% by the year-end.

The AUD/JPY pair rises to near 97.87 in Wednesday’s European session. The cross struggles to extend its upside above the immediate resistance of 98.00 as investors have sidelined ahead of the Australian Employment data for July, which will be published on Thursday.

The Aussie Employment report is expected to show that the labor market was added with fresh 26.5K payrolls, lower than June’s reading of 50.2K. The Unemployment Rate is seen steady at 4.1%. Easing labor market conditions would prompt expectations of interest-rate cuts by the Reserve Bank of Australia (RBA) sooner rather than later.

Currently, financial markets expect that the RBA will not reduce its key Official Cash Rate (OCR) this year. Market speculation for the RBA pivoting to interest-rate cuts next year were prompted by RBA Governor Michelle Bullock’s hawkish guidance. Bullock said last week that the central bank is vigilant to inflation risks and interest rates would be hiked further if needed.

Meanwhile, improved market sentiment continues to provide support to the Australian Dollar (AUD). Global risk-appetite improves as fears of a potential United States (US) recession have waned.

On the Japanese Yen (JPY) front, easing widespread risk-aversion has weighed on safe-haven flows to the Yen. The next trigger for the Yen will be the preliminary Q2 Gross Domestic Product (GDP) data, which will be published on Thursday. The Japanese economy is estimated to have grown by 0.5% after contracting at a similar pace in the previous quarter. Upbeat GDP growth would boost speculation for further policy-tightening by the Bank of Japan (BoJ).

In the last monetary policy meeting, the BoJ hiked its interest rates unexpectedly by 25 basis points (bps) and announced plans to taper bond-buying operations. A research note from Danske Bank showed that the BoJ could raise its interest rates to 1% within the coming 12 months.