AUD/JPY extends recovery above 84.00 despite US-China jitters, Australia Retail Sales, BOJ eyed

• AUD/JPY consolidates the previous day’s losses from fresh top since February 2018.
• US-China diplomats show lesser signs of productive talks in Alaska.
• Vaccine optimism, Aussie data and reflation fears ahead of BOJ also play their roles.

AUD/JPY holds on to corrective pullback from 84.35 to 84.55 during the initial Asian session on Friday. The pair dropped the most in three weeks the previous day after refreshing the highest levels since February 2018.

Although Australia’s upbeat employment report for February could be traced for the upside, the return of reflation fears could be spotted for the pair’s following declines. It should, however, be noted that the latest recovery moves lack upside momentum as traders turn cautious ahead of Australia’s preliminary Retail Sales for February as well as the monetary policy meeting of the Bank of Japan (BOJ).

Other than the pre-data/event caution, the on-going squabble between the US and China in Alaska also probes the AUD/JPY bulls. As per the latest tweet from Senior White House Reporter for Bloomberg Jennifer Jacobs:

Also read: China Foreign Min. Jeichi: US abuses concepts of national security to threaten future of international trade

Talking about reflation fears, the Fed’s failure to tame bond bears seems to have a spill-over effect across the global markets, which in turn portrays a risk-off mood.

On the positive side, US President Joe Biden cheers on reaching 100 million vaccine shots target by Friday while the European Medicine Authority (EMA) suggests that AstraZeneca is safe.

Against this backdrop, US 10-year Treasury yields await fresh moves after rising to the highest since January 2020 on Thursday. Though, the S&P 500 Futures track Wall Street to the south by the press time.

Looking forward, expected weakness in the Aussie Retail Sales, 0.4% versus 0.5% prior, may offer an additional burden to the AUD/JPY prices while the BOJ’s anticipated adjustments on the ETF buying strategy and yield Curve Control (YCC) can also depress the bulls. However, risk catalysts are likely to play a major role going forward.

Read: BoJ Preview: Policy review to focus on yield curve control framework and ETF-buying

Technical analysis

A three-week-old ascending trend line, at 84.30 now, restricts the immediate downside of AUD/JPY prices.