AUD/JPY: Downside risks rise after gloomy China data

AUD/JPY may suffer a deeper decline during the day ahead as the China data released soon before the press time may force investors to reassess the strength of the recovery in the world’s second-largest economy. 

Industrial Production rose 4.8% year-on-year in July, missing the forecast for a 5.1% rise. The output had expanded by 4.8% in June. Meanwhile, consumer spending, as represented by Retail Sales, declined by 1.1% versus expectations for a 0.1% growth following June’s 1.8% contraction. 

The weaker-than-expected data contradicts the continued economic recovery and easing of deflationary pressures signaled by the producer price index released earlier this month. 

As such, the risk sentiment could weaken and investors may offer China-sensitive risk currencies like the Australian dollar. Additional bearish pressures may stem from the US Congress’ inability to pass the much-anticipated additional coronavirus stimulus bill. 

The AUD/JPY pair is trading at session lows near 76.35 at press time, representing a 0.11% decline on the day, having faced rejection above 76.54 early Friday. The pair has declined by three pips since the release of the China data. 

The S&P 500 futures are reporting a 0.16% gain. Wall Street registered losses on Thursday deposit the decline in the US weekly jobless claims. 

The Reserve Bank of Australia’s governor Lowe said early Friday that rates could remain at record lows for five years, but downplayed the need to sub-zero borrowing costs. 

Technical levels