The currency pairing of AUD/JPY is encountering difficulties after Australia released a mix of economic figures. The Aussie Dollar is under pressure, especially in light of China’s Consumer Price Index data, which suggests rising deflationary concerns. Meanwhile, the Japanese Yen has appreciated following a notable increase in Labor Cash Earnings, which climbed by 3.0% year-on-year in November, up from a previous 2.2%.
This situation has resulted in the Australian Dollar losing ground against the Japanese Yen. Currently, the AUD/JPY cross is hovering around 98.00 in the early European trading hours. This movement follows the unveiling of domestic economic data from Australia and the release of China’s inflation figures on Thursday.
Earlier in the week, Australian economic indicators revealed a modest uptick in headline inflation, which rose to 2.3% in November from 2.1%. However, core inflation eased slightly, dropping to 3.2% from 3.5%. These shifts come after recent comments from the Reserve Bank of Australia, signaling a growing belief that inflation is headed back towards their target range of 2-3%, with possible interest rate reductions on the horizon.
In terms of consumer activity, Australia’s Retail Sales, a key consumer spending metric, recorded a 0.8% increase from October to November, an improvement on the revised 0.5% gain from October. However, this result was below the market’s forecast of a 1.0% rise.
Australia also reported a notable trade surplus in November, which widened to 7,079 million, surpassing both the forecasted 5,750 million and the prior month’s revised figure of 5,670 million. Exports surged by 4.8% month-on-month in November, up from October’s revised 3.5%. Import growth was also noted, with a 1.7% increase in November, compared to 0% growth the previous month.
The Australian Dollar faces additional challenges due to China’s Consumer Price Index data, which highlights deflationary risks. In December, the annual inflation rate nudged up by only 0.1%, down from November’s 0.2%, in line with market predictions. On a monthly basis, consumer prices held steady in December, consistent with expectations, after a sharp 0.6% drop the month before. Changes in economic dynamics within China could have a significant influence on the Australian market, given the strong trade ties between the two countries.
In Japan, the Yen has received a boost from solid wage growth statistics. Labor Cash Earnings increased by 3.0% year-on-year in November, outperforming the previous month’s revised increase of 2.2%, and beating the market’s estimate of a 2.7% rise.
However, when factoring inflation, real wages—an essential indicator of consumer purchasing power—fell by 0.3% year-on-year in November, adding to the previous consecutive declines, including a 0.4% drop in October. This ongoing downward trend in real wages has raised questions about the likelihood of the Bank of Japan considering interest rate hikes. Additionally, a dip in consumer confidence in December has added a cautious tone to any outlook for policy tightening by the BoJ.
