AUD/JPY extends bounce off five-month lows towards 81.00, Australia Retail Sales eyed

• AUD/JPY defends corrective pullback from multi-day low, edges higher of late.
• Risk-off mood cools amid stimulus hopes, further support for easy money policies.
• Over half of Australia is under virus-led lockdown, Tokyo again registers over 1,000 cases.
• BOJ Minutes, Aussie Retail Sales could offer immediate direction, risk catalysts are the key.

AUD/JPY holds onto corrective pullback from early February lows inside a choppy range surrounding 80.50–60 during Wednesday’s Asian session. The cross-currency pair bounced off the multi-day bottom, snapped a five-day downtrend, amid a recovery in the market sentiment the previous day.

Escalating talks over the US infrastructure spending bill, ahead of today’s procedural votes, keep markets hopeful of another stimulus. Recently, Democratic Senator Joe Manchin hinted that sides “Not that far apart” in infrastructure talks.

Further, the coronavirus variant fears challenge the economic recovery from the pandemic’s earlier wave and hence push the policymakers to keep the easy money flowing, which in turn brightens the market mood.

It’s worth noting that expectations of strong earnings for the second quarter and the RBA Minutes, not to forget Japanese inflation data, also contribute to the market’s latest risk-on mood.

Even so, South Australia’s lockdown marks over 50% of the nation witnessing activity restrictions whereas Victoria’s covid count recently jumped from 15 to 22. On the other hand, Tokyo reported 1,387 infections on Tuesday after marking the first below 1,000 numbers in six days.

Amid these plays, S&P 500 Futures print mild gains, tracking Wall Street to the north, whereas the US 10-year Treasury yields also recovered from February lows the previous day.

Looking forward, Minutes of the latest Bank of Japan (BOJ) monetary policy meeting and Japanese trade data for June will precede the Aussie Westpac Leading Index and the preliminary reading of Retail Sales for the previous month to direct immediate AUD/JPY moves. Given the comparatively downbeat expectations from Aussie catalysts, coupled with the magnified COVID-19 woes in Canberra, AUD/JPY may find it tough to extend the latest recovery.

Technical analysis

Although oversold RSI and multiple halts to the bearish trajectory between 80.00 and 79.70 test AUD/USD bears, the recovery moves remain unconvincing below the 200-DMA level of 81.20.