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Bid above 75.00 despite dismal China factory-gate inflation

  • AUD/JPY is extending gains despite weaker-than-expected China factory-gate inflation. 
  • Chinese authorities have more room to stimulate the economy with price pressures subdued. 
  • Risk reset is likely boding well for the AUD. 

AUD/JPY is showing resilience to dismal China inflation data. 

The currency pair continues to trade in the green above 75.00 even though China’s producer price index or factory-gate inflation cooled for the sixth straight month in December, pointing to sustained pressure on the world’s second-biggest economy. 

The PPI declined 0.5% year-on-year compared to forecast of 0.4% contraction. The pace of decline, however, eased significantly from November’s 1.4% drop. 

Meanwhile, the cost of living, as represented by the consumer price index, rose 4.5% year-on-year in December, missing the estimate of 4.7%. 

With price pressures subdued, authorities have room to ease monetary policy to shore up slowing growth. 

That coupled with the easing of US-Iran tensions and the S&P 500 back in searching for record highs is likely keeping the AUD better bid. 

The AUD/JPY cross is currently trading at session highs near 75.10, having risen from 74.84 to 75.05 ahead of the China data release. The data released at 00:30 GMT showed Australia’s trade surplus rose to A$5,800 million in December from November’s A$4,502 million. 

While the risk reset is boding well for the AUD/JPY pair, big gains may remain elusive, as the market pricing for an RBA rate cut in February remains strong at over 60%. 

Technical levels

 

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