AUD/JPY edges higher to near 96.80 after rebounding from two-month lows, US NFP eyed

AUD/JPY continues to gain ground, recovering from the two-month low at 95.50 observed in the previous session. The cross trades higher around 96.80 during the European session on Friday. The Australian Dollar (AUD) has found support from an improved Australian money market, contributing to the strength of the AUD/JPY cross.

Furthermore, the better-than-expected Producer Price Index (PPI) data from Australia underpinned the Aussie Dollar, subsequently underpinning the AUD/JPY cross. The Australian Bureau of Statistics has released the PPI (YoY) for the fourth quarter, reporting an improvement with a growth rate of 4.1%, surpassing the previous growth of 3.8%.

On Thursday, a Reuters Poll showed an expectation that the Reserve Bank of Australia (RBA) could maintain the current interest rate of 4.35% in its upcoming February meeting. Furthermore, former RBA board member Warwick McKibbin suggested that the Australian cash rate may remain around 4.5% for an extended period.

The Australian Dollar has faced challenges, as bond traders have increased their expectations of early interest rate cuts by the Reserve Bank of Australia (RBA) following an unexpectedly weak quarterly inflation report. Futures markets are fully pricing in 50 basis points reductions in 2024, with the first adjustment anticipated in August.

The Bank of Japan's (BoJ) hawkish stance has provided support for the Japanese Yen (JPY). Additionally, the escalated geopolitical tensions in the Middle East might have driven the investors towards the safe-haven Japanese Yen, consequently capping the advances of the AUD/JPY cross.

The Japanese Yen might have gained support from the influx of foreign investment. For the week ending January 26, Foreign Bond Investment in Japan recorded inflows of ¥382.9 billion, a significant turnaround from the previous week's outflows of ¥43.5 billion. Additionally, Foreign Investment in Japanese Stocks rebounded during the same week, rising to ¥720.3 billion compared to the previous week's ¥287 billion.