AUD/JPY drops to one-month low ahead of China inflation data

The rebound in the US dollar and the rise in the safe haven demand for the Yen has pushed the AUD/JPY cross down to a one-month low of 86.79 levels ahead of the China data, which is expected to show the consumer price index returned to positive territory in July. 

China CPI is seen rising 0.2% n/n in July as opposed to the 0.2% contraction seen in June. The annualised CPI is seen rising 1.5%. 

Focus on PPI

The CPI may dominate the headlines; however, the AUD and the broader markets are likely to respond more to the PPI figure, which is seen unchanged at 5.5%.

A better-than-expected PPI would signal the great reflation trade is gathering pace again. Thus, AUD stands to gain, while the JPY could erase early gains on account of the risk-on action in the markets. On the other hand, a weaker-than-expected PPI release would weigh over the risky assets, and may yield further losses in the AUD/JPY. 

AUD/JPY Technical Levels

The cross currently trades around 86.82 levels. A break below 86.50 [38.2% Fib R of 81.78-89.42] would open doors for a drop to 86.00 [upward sloping 50-DMA] and 85.50 50% Fib R of 81.78-89.42]. On the other hand, a break above 87.00 handle [July 4 high] would expose 87.39 [5-DMA] and 87.58 [1-hour 50-MA].