AUD/JPY holds steady as traders await the RBA

AUD/JPY is holding on solid ground as markets get set for the Reserve Bank of Australia later today. At the time of writing, the cross is up some 0.20% on the day so far and firming on the prospects of peace talks resuming later this week between Russia and Ukraine. Additionally, the commodity currencies are getting a lift due to the inflation outlook and the likely hood of higher commodity prices.

In recent trade, Chinese economic data beat expectations which was a welcome surprise. ''Lower economic activity due to the Lunar New Year likely was expected to weigh on the PMIs in Feb as factories shut for the holidays and workers return to their hometowns'', analysts at TD Securities explained. 

''Virus containment measures are likely to continue to weigh on the services sector which could offset any boost to consumption from the holidays. Further monetary easing ahead should help to support activity.''

Meanwhile, a modicum of calm returned to currency markets after officials from Russia and Ukraine held an initial round of ceasefire talks, four days after Russia invaded. In this regard, analysts at Rabobank explained that ''some of the specifics of this conflict including the fears around the supply of various commodities means that the winners and losers in the FX space are different than in previous crises.''

''Ordinarily, this would suppress demand and reduce risk appetite,'' the analysts noted. 

''Higher-risk currencies would tend to adjust lower in this environment and often this would include the currencies of commodity exporters. However, Russia’s status as a large commodity exporter means that the threat of supply disruptions of oil, gas and various agricultural commodities has been amplified. The NOK has regained all the ground lost vs. the USD on the news of the invasion.''

''AUD, CAD and NZD are also recovering their poise vs. the mighty USD. The NOK and the CAD are the currencies of large oil exporters.  The AUD is usually well correlated with oil given its huge coal exports (which is a substitute good).  Australia also exports LNG. In the current environment, we expect the commodities currencies to remain well supported.''

RBA outlook

The RBA is universally expected to keep its cash rate at 0.1%.  Traders will be looking to see if there is any shift in rhetoric concerning the timing of the tightening cycle.