AUD/JPY fades North Korea dip, focus on the reflation story

AUD/JPY faded the Noth Korea dip to 87.66 levels as the reflation story is back in the limelight following the pick up in China PPI and US CPI in August.

North Korea's missile passed over Hokkaido, Japan - NHK

Global reflation story is AUD positive

China story has been key to the global reflation theme. Chinese PPI bottomed out in July/Aug 2016 and topped out in Feb 2017. During the 8-month period, the US inflation expectations spiked, Yen dropped, while commodity currencies like the AUD were bid, especially against lower yielding currencies.

A similar action could unfold now, given the Chinese PPI gathered pace in August. Meanwhile, the weak tone in the Japanese Yen could persist as speculation is rife that this week's rally in the nominal 10-year yields could be extended to 2.3%- to-2.5% range.

AUD/JPY Technical Levels

A break above 88.48 [Sep 12 high] would open up upside towards 88.74 [previous day's high] and 89.00 [zero levels]. On the other hand, a break below 88.00 [zero levels] could yield a re-test of the session low of 87.66. A violation there would expose 87.46 [50-DMA].

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