AUD/JPY surges +20 pips as Aussie CPI beats expectations

• AUD/JPY rises as Australia’s headline inflation data crosses market anticipation.
• Political/trade tension still looms over the pair’s upside momentum.

AUD/JPY rises to 74.73 after Australia’s headline inflation data beats market expectations.

Australia’s second quarter (Q2) Consumer Price Index (CPI) came in 0.6% versus 0.5% expectations whereas the Australian central bank’s preferred version of inflation, i.e. Reserve Bank of Australia (RBA) Trimmed Mean CPI, matched 0.4% consensus on QoQ basis.

Even if the Aussie monetary policy authorities have recently been giving higher importance to the employment statistics, early indicators of which remain sluggish off-late, upbeat inflation prints reduces the odds of another rate cut from the RBA at least for near-term.

Likely increase in political tension between the US and North Korea joined doubts surrounding any breakthrough from the US-China trade talks portray recent downpour of the quote.

Previously adding to the sentiment could be sluggish Chinese activity numbers for July. China’s official Purchasing Managers’ Index (PMI) couldn’t impress the Aussie players as the Manufacturing PMI couldn’t cross the 50.00 level, which separates contraction from the rise, even after crossing the market expectations of 49.6 with a 49.7 outcome. On the other hand, Non-Manufacturing PMI lagged well behind 54.5 forecast to 53.7.

Also, North Korea undertook another missile test program, second in a week, during early-day that in turn inflates the tension among global political fraternity despite the US denying this fact.

Markets also remain under pressure ahead of the key events like final announcements from the Shanghai talks and the key monetary policy meeting at the US Federal Reserve that is widely anticipated to announce a 0.25% Fed rate cut, the first in more than a decade.

Technical Analysis

Pair’s extended south-run past-China data indicate brighter chances of its gradual declines to 73.92/84 crucial support area that encompasses June month trough and 23.6% Fibonacci retracement level od December 2018 to January 2019 drop. However, June 20 low near 74.13 can offer an intermediate halt. Alternatively, July 03 bottom, around 75.13, followed by the 21-day exponential moving average (EMA) level of 75.38, can keep the price pullback in check.