AUD/JPY drops and pops after RBA minutes, Aussie/China data

  • AUD/JPY initially dropped to intra-day low as RBA minutes showed bears’ dominance but housing data from China/Australia favored buyers.
  • RBA reiterates promise to consider further easing if needed to support growth, inflation targets.
  • Geopolitics, trade headlines have been negatively affecting the global market sentiment off-late.

With the contrasting signals from the RBA minutes and housing data from Australia/China, AUD/JPY reverses initial drop to intra-day low of 74.10 by rising back to 74.20 by the press time of early Tuesday.

The RBA minutes for the early-September meeting showed that the Aussie central bank refrained to turn optimist while mentioning that further monetary easing "widely expected" around the world and escalation in China-US trade dispute has intensified downside risks to global growth.

Read More: RBA minutes: Would consider further policy easing if needed to support growth, inflation targets – AUD unmoved

Additionally, Australia’s Second Quarter (Q2) House Price Index came in better than -1.0% forecast to -0.7% on a QoQ whereas China’s House Price Index for August also surpassed on MoM basis.

Furthermore, news that China's Vice Finance Minister will leave for the US trade talks on Wednesday might also have helped the pair.

Risk tone has been heavy off-late with the recent arrest of Chinese government employee by the US adding fuel to concerns surrounding Saudi Arabian attacks. With this, the S&P500 Futures stays on the back foot while the US 10-year Treasury yield drops nearly two basis points to 1.83% by the press time.

Given the latest arrest of a Chinese official, the US-China relations can adversely affect the recent optimism surrounding the October trade meeting between the world’s two largest economies. Though, China’s reaction to the same is still awaited for the matter and will be closely observed.

Technical Analysis

A sustained break above the 100-day exponential moving average (EMA) around 74.60 becomes necessary for the pair to aim for 75.00 and 50% Fibonacci retracement level of April-August declines at 75.36. Failure to cross immediate upside barrier can drag the pair to 73.45/40 confluence, including resistance-turned-support line and 50-day EMA. Also, pair’s declines below 73.40 will take aim at  23.6% Fibonacci retracement level around 72.50.

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