AUD/JPY sticks to modest gains, remains below 200-day SMA hurdle near 100.00 mark

AUD/JPY draws support from a combination of factors and moves back closer to a two-month top.
Ishiba's comments about BoJ rate hikes overshadow upbeat domestic data and undermine the JPY.
The stronger Australian Retail Sales data boosts the Aussie amid optimism over Chinese stimulus.

The AUD/JPY cross attracts buyers for the second straight day on Tuesday and climbs to the 99.75-99.80 region during the Asian session, closer to a technically significant 200-day Simple Moving Average (SMA).

The Japanese Yen (JPY) continues to be undermined by comments from Japan's incoming Prime Minister (PM) Shigeru Ishiba, saying that the Bank of Japan's (BoJ) monetary policy must remain accommodative to underpin a fragile economic recovery. Furthermore, Ishiba said on Monday that he intends to call a general election on October 27, which overshadows mostly upbeat Japanese macro data and does little to provide any meaningful impetus to the JPY.

A government report published earlier today showed that Japan's Unemployment rate dropped to 2.5% in August from the 2.7% previous. Separately, a BoJ's Tankan survey indicated that sentiment among Japan's big manufacturers was steady and slight improvement in large non-manufacturers' mood during the third quarter. Meanwhile, BoJ's Summary of Opinions revealed that the central bank will adjust its accommodative stance if economic conditions improve.

The Australian Dollar (AUD), on the other hand, strengthened a bit following the release of domestic Retail Sales, which rose 0.7% in August as compared to a modest 0.1% increase in the previous month. This comes on top of the Reserve Bank of Australia's (RBA) hawkish stance and the optimism over a slew of stimulus measures from China last week, which continues to benefit the Aussie and turns out to be a key factor acting as a tailwind for the AUD/JPY cross.

It, however, remains to be seen if bulls can build on the momentum or once again face rejection near the 100.00 psychological mark amid the growing market conviction that the BoJ will hike interest rates again by the end of this year. Furthermore, the formation of a 'Death Cross' on the daily chart – the 50-day Simple Moving Average (SMA) crossing below the 200-day SMA – warrants caution before placing bullish bets around the AUD/JPY cross and positioning for further gains.

Economic Indicator

Retail Sales s.a. (MoM)

The Retail Sales data, released by the Australian Bureau of Statistics on a monthly basis, measures the value of goods sold by retailers in Australia. Changes in Retail Sales are widely followed as an indicator of consumer spending. Percent changes reflect the rate of changes in such sales, with the MoM reading comparing sales values in the reference month with the previous month. Generally, a high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

Why it matters to traders?

The primary gauge of Australia’s consumer spending, the Retail Sales, is released by the Australian Bureau of Statistics (ABS) about 35 days after the month ends. It accounts for approximately 80% of total retail turnover in the country and, therefore, has a significant bearing on inflation and GDP. This leading indicator has a direct correlation with inflation and the growth prospects, impacting the Reserve Bank of Australia’s (RBA) interest rates decision and AUD valuation. The stats bureau uses the forward factor method, ensuring that the seasonal factors are not distorted by COVID-19 impacts.

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