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  • AUD/JPY extends recovery from the 16-week low after China’s Caixin Manufacturing PMI.
  • Fears of coronavirus outbreak have earlier dominated the risk tone, Japanese data came in below expectations.
  • Chinese authorities have taken steps to tame short-selling, further developments and Tuesday’s RBA will be important to watch.

AUD/JPY remains on the front foot while taking the bids to 72.80 after China’s Caixin released monthly manufacturing data on early Monday. The private manufacturing gauge slipped below 51.3 forecasts and 51.5 prior to 51.1.

Read: Breaking: Chinese Caixin Manufacturing PMI (Jan) 51.1 vs 51.5 prior

Having already crossed SARS during the last week, China’s coronavirus has so far taken more than 350 lives globally while there have been 14,550+ infected people. Identifying this threat to the global economy, the World Health Organization (WHO) has recently termed coronavirus as an international health emergency.

Additionally, global economies have also curtailed their travels to and from China whereas the American Airlines Group went a step farther to ban the US entry to foreign nationals who have visited Beijing in the last 14 days.

While fears of an epidemic have already played its role taking down the global treasury yields down, the recent steps from the Chinese government to tame the short-selling might have triggered the latest pullback in the US 10-year yields to 1.532%. It’s worth mentioning that Chinese stocks are down 9% during the initial opening.

Markets will now keep eyes on how Chinese traders react during the initial days while also following Aussie fundamentals ahead of tomorrow’s RBA. Even if the Australian central bank isn’t expected to alter its current monetary policy at the end of this meeting, a bearish signal opening the door for future rate cuts can’t be ruled.

Technical Analysis

50.00% Fibonacci retracements of its run-up from August to December 2019, near 73.45, offers immediate upside barrier while an area including October 2019 low and highs marked during late-August, around 71.75/85 grab the bears’ attention during further declines.