AUD/JPY juggles around 91.30 ahead of RBA monetary policy

The AUD/JPY is displaying back-and-forth moves around 91.30 as investors are awaiting the interest rate decision by the Reserve Bank of Australia (RBA) for fresh impetus. Signs of volatility contraction are visible in the cross ahead of RBA policy as investors will keenly focus on remarks over inflation projections.

A historic jump in the Australian Consumer Price Index (CPI) to 7.8% for the fourth quarter of CY2022 dictates that households are bound for extremely higher payouts to necessities and durables. Also, the Australian inflationary pressures have not peaked yet, which gives a green signal to the continuation of policy tightening by the central bank.

To tame soaring inflation, RBA Governor Philip Lowe has already pushed the Official Cash Rate (OCR) to 3.10% and further escalation in interest rates cannot be ruled out.

Analysts at ING expect “RBA to hike rates by 25 bps to 3.35%. Considering the much higher-than-expected inflation readings over the past two months, we have increased our peak RBA cash rate forecast to 4.1% from 3.6%, assuming that there are two further months of 25 bps hikes ahead. AN occurrence of the same would be the fourth consecutive 25 bps rate hike by the central bank.

Meanwhile, a virtual meeting between trade partners of Australia and China on Monday is broadly setting a positive tone for the Australian Dollar. China is willing to restart the economic, trade exchange mechanism with Australia and hopes that the latter will provide Chinese firms with a fair, open, non-discriminatory business environment.

On the Japanese Yen front, The Yen displayed sheer volatility after a report from Nikkei claimed that the Japanese government has approached Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya to succeed Haruhiko Kuroda as the head of the central bank.

Japan’s Deputy Chief Cabinet Secretary Yoshihiko Isozaki clarified on Monday that there is “no truth to report BoJ Deputy Gov Amamiya sounded out for the next BoJ governor.

Also, Japan's Finance Minister Shunichi Suzuki cited “I have not heard anything about the nomination of Amamiya as BoJ Governor,” as reported by Reuters.