AUD/JPY flat lines above 112.50, highest since March 18 after Chinese inflation data

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The AUD/JPY cross enters a bullish consolidation phase during the Asian session on Friday and reacts little to mixed Chinese inflation figures. Spot prices currently trade just above mid-112.00s, or the highest level since March 18, and remain on track to register strong weekly gains.

AUD/JPY is seen consolidating its strong weekly gains registered over the past four days.
China’s mixed inflation figures do little to provide any impetus to the AUD or spot prices.
Economic concerns stemming from Hormuz tensions weigh on the JPY and lend support.

The National Bureau of Statistics reported that China’s headline Consumer Price Index (CPI) rose 0.9% in March from a year ago, marking a slowdown from 1.3% in the previous month and missing estimates for a reading of 1.2%. On a monthly basis, the gauge declined 0.7%, compared to 0.2% fall expected and the 1% rise recorded in February. The disappointment, however, was offset by a pickup in the Producer Price Index (PPI), which came in better than anticipated and rose 0.5% YoY in March vs -0.9% prior. The data fails to provide any impetus to the China-proxy Australian Dollar (AUD) or the AUD/JPY cross.

The Japanese Yen (JPY), on the other hand, continues with its relative underperformance amid concerns that Japan's economy will come under substantial strains in the foreseeable future due to disruptions to shipping through the Strait of Hormuz. In fact, Iran once again shut down traffic through the strategic waterway in response to brutal Israeli attacks on Lebanon. Adding to this, US President Donald Trump warned of renewed strikes if the Iran deal fails, suggesting that escalation risks remain on the table. This, in turn, acts as a tailwind for the AUD/JPY cross as the US and Iran prepare for ceasefire talks in Pakistan.

Economic Indicator

Producer Price Index (YoY)

The Producer Price Index released by the National Bureau of Statistics of China is a measurement of the rate of inflation experienced by producers. It captures the average changes in prices received by Chinese domestic producers of commodities in all stages of processing (crude materials, intermediate materials, and finished goods). Changes in the PPI are widely considered as an indicator of commodity inflation. If the Producer Price Index increase is excesive, it would indicate that inflation has become a destabilizing factor in the economy, The People’s Bank of China would tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, whereas a low reading is seen as negative (or bearish) for the CNY.