AUD/JPY corrects from 92.00 as RBA sees inflation softening ahead

The AUD/JPY pair has slipped below 91.60 after failing to kiss the crucial resistance of 92.00 in the late New York session. The risk barometer has lost strength and is declining after commentary from the Reserve Bank of Australia’s (RBA) head of economic analysis Marion Kohler.

RBA’s Kohler believes that the Australian economy has seen inflation peak at 7.8% in the fourth quarter of CY2022, and the price pressures may start declining ahead. Last week, the Australian Bureau of Statistics reported a jump in the inflation rate to 7.8% amid supply chain bottlenecks and rising food prices.

Meanwhile, a decline in monthly Retail Sales (Dec) data released this week supports the view of RBA’s Kohler of inflation softening ahead. The economic data contracted by 3.9% from an expansion of 1.7% released in November, while the street expected a contraction of 0.3%. A contraction in retail demand is a critical indicator for inflation projection. Lower consumer spending calls for a decline in producers' prices of goods and services at factory gates to maintain the demand-supply mechanism.

However, RBA Governor Philip Lowe might continue hiking interest rates further as the road to recovery is far from over. The RBA is expected to continue the 25 basis points (bps) interest rate hike spell to tame stubborn inflation.

On the Japanese Yen front, Japan's Finance Minister Shunichi Suzuki reiterated Tuesday that “wage increases are important to both the government and the Bank of Japan (BoJ).