AUD/JPY drops to 110.00 as notable JPY strength offsets upbeat Australian Q4 GDP print

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AUD/JPY attracts some sellers for the second straight day as safe-haven flows underpin the JPY.
The upbeat Aussie GDP reaffirms RBA rate hike bets, though it fails to impress the Aussie bulls.
Diminishing odds for an immediate BoJ rate hike might cap the JPY gains and support spot prices.

The AUD/JPY cross meets with a fresh supply following the previous day's modest rebound from the vicinity of mid-109.00s, or the weekly low, and fails to gain any meaningful traction in reaction to the upbeat Australian GDP print. Spot prices drop to the 110.00 psychological mark in the last hour, though the fundamental backdrop warrants caution before positioning for any meaningful corrective fall from the all-time peak, touched on Tuesday.

The Australian Bureau of Statistics (ABS) reported earlier today that the domestic economy expanded by 0.8% during the fourth quarter, compared to the 0.4% rise recorded in the previous quarter. On an annualized basis, Australia's GDP grew by 2.6% in Q4, up from 2.1% in Q3 and beating consensus estimates for a 2.2% increase. The data backs the Reserve Bank of Australia's (RBA) hawkish stance and reaffirms market bets for another interest rate hike in May. This, however, does little to impress the Aussie bulls or assist the AUD/JPY cross to attract buyers amid rising geopolitical tensions.

Investors remain concerned about a prolonged conflict in the Middle East and its impact on the global economy amid an already uncertain environment. In fact, US President Donald Trump said that the US military operation in Iran could take four to five weeks, and more strikes would continue for as long as necessary. This continues to weigh on investors' sentiment, which is evident from a generally weaker tone around the equity markets, underpinning demand for the safe-haven Japanese Yen (JPY), and turns out to be a key factor exerting downward pressure on the AUD/JPY cross.

Any meaningful JPY appreciation, however, seems elusive in the wake of diminishing odds for an immediate interest rate hike by the Bank of Japan (BoJ). Reuters reported that sources familiar with the central bank’s thinking stated that fresh market volatility triggered by the Middle East conflict has heightened the chance the Bank of Japan (BoJ) will hold off on raising rates in March. This comes on top of Japanese Prime Minister Sanae Takaichi's reservations about additional monetary tightening by the BoJ. This might cap JPY gains and lend support to the AUD/JPY cross.

Economic Indicator

Gross Domestic Product (QoQ)

The Gross Domestic Product (GDP), released by the Australian Bureau of Statistics on a quarterly basis, is a measure of the total value of all goods and services produced in Australia during a given period. The GDP is considered as the main measure of Australian economic activity. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a rise in this indicator is bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

Why it matters to traders?

The Australian Bureau of Statistics (ABS) releases the Gross Domestic Product (GDP) on a quarterly basis. It is published about 65 days after the quarter ends. The indicator is closely watched, as it paints an important picture for the economy. A strong labor market, rising wages and rising private capital expenditure data are critical for the country’s improved economic performance, which in turn impacts the Reserve Bank of Australia’s (RBA) monetary policy decision and the Australian dollar. Actual figures beating estimates is considered AUD bullish, as it could prompt the RBA to tighten its monetary policy.