AUD/JPY hits one-week high even as China tips into deflation

The Australian Dollar registered a fresh one-week high against the Japanese Yen on Wednesday as risk sentiment showed signs of improvement despite another set of weak macro data coming out of China.

The National Bureau of Statistics reported on Wednesday that Chinese consumer prices had decreased by 0.3% year-on-year in July, marking the first drop since February 2021.

Food prices went down 1.7% year-on-year in July, after rising in the previous 15 months, as pork prices plunged. Meanwhile, non-food prices were flat in July, after decreasing 0.6% in June.

The CPI figures were released a day after another data set showed Chinese exports had contracted at the sharpest annual rate since February 2020 and imports had dropped the most in six months in July.

Those recent data prints suggested efforts to reinvigorate demand faltered and pressure mounted on Chinese authorities to release more direct policy stimulus.

The Chinese Yuan bounced off a one-month low against the US Dollar as state-owned banks sold dollars, according to media reports. Also, China’s central bank set a stronger-than-expected Yuan exchange rate fixing at 7.1588 per dollar before the open, an indication it was not comfortable with the currency’s recent drop.

Meanwhile, markets are expecting Australia’s inflation will moderate enough for the Reserve Bank of Australia to maintain its benchmark interest rate at 4.1%. But there is now a 40% chance of one additional rate hike by December.

“The RBA has given the impression that the bar for another hike near term is quite high,” Sean Callow, senior currency strategist at Westpac, was quoted as saying by Reuters.

“Notably, the RBA board now believes that recent data is consistent with achieving the inflation target – a confident assessment few central bankers have been prepared to codify in their policy statements.”

As of 7:33 GMT on Wednesday AUD/JPY was inching up 0.06% to trade at 93.869. During the early phase of the Asian session, the minor Forex pair went up as high as 94.015. The latter has been the pair’s strongest level since August 2nd (94.899).