AUD/JPY hits one-week low ahead of China PPI

• AUD/JPY down for a third day.
• Markets digest BOJ move.
• China CPI, PPI could move AUD.

AUD/JPY breached the support at 87.97 (23.6% Fib R of Nov-Jan rally) and fell to a one-week low of 87.83 ahead of the China inflation release.  

The Yen remains well bid as investors assess whether the Bank of Japan's (BOJ) routine reduction in the long duration bond purchases represents a shift in the policy. There is growing consensus in the market that yesterday's QE reduction does not mark a new normalization bias, but indicates the diminishing need for QE to reach the 0% 10-yr yield curve control target.

Focus on China PPI

A better-than-expected China producer price index (PPI) could revive the reflation trade and put a bid under the Aussie dollar. China PPI is seen falling to 4.8% y/y in December vs. November figure of 5.8%.

AUD/JPY Technical Levels

As of writing, the pair is trading at 87.87 levels. A close below 87.63 (Jan. 2 doji candle low) would mean the rally from the Nov. low of 84.35 has ended. The cross could then test support at 87.19 (100-day MA) and 86.48 (50-day MA).

On the higher side, a move above 88.17 (daily high) would open up upside towards 89.00 (zero figure) and 89.09 (recent high).