AUD/JPY inches lower to near 96.60 as safe-haven Yen improves on Middle East tension

AUD/JPY retraces its recent gains amid speculation of an imminent shift in the Bank of Japan's (BoJ) policy stance. Additionally, escalated geopolitical tension in the Middle East contributes to increased demand for the safe-haven Japanese Yen (JPY), acting as a headwind for the AUD/JPY cross. As a result, the cross edges lowered to around 96.60 during the Asian session on Monday.

The United States (US) and the United Kingdom (UK) conducted new air strikes on the Iran-backed Houthi militant group in Yemen on Saturday. This action was taken in response to a drone strike that resulted in the death of three US service members in Jordan. Adding to the tensions, White House national security adviser Jake Sullivan warned on Sunday that US airstrikes on Iranian-backed militias were just the beginning. Sullivan also expects the possibility of strikes on Iranian soil.

The Australian Dollar (AUD) is under selling pressure as the benchmark S&P/ASX 200 Index retreats from last week's record high. The decline is particularly pronounced in the miners and energy sectors, which is putting additional downward pressure on the AUD/JPY cross

On Monday, Australia’s Trade Balance (MoM) for January indicated a reduction, with the figure at 10,959M compared to the revised figure of 11,764M in December. Additionally, the Judo Bank Composite Purchasing Managers Index (PMI) improved to 49 in January from 48.1 prior. The Services PMI also saw an improvement, rising to 49.1 from the previous figure of 47.9.

The Reserve Bank of Australia (RBA) is scheduled to announce its interest rate decision on Tuesday. Markets expect RBA to maintain the cash rate at its current level of 4.35%. Investors will pay close attention to RBA Governor Michele Bullock's speech on the monetary policy outlook, as it could provide additional insights into the central bank's stance and considerations for future policy actions.