AUD/JPY adds to stronger Australian CPI-led gains, hits fresh weekly top around 98.00

• AUD/JPY catches aggressive bids on Wednesday in reaction to the stronger Australian CPI print.
• The disappointing Manufacturing PMI from Japan weighs on the JPY and supports the cross.
• The divergent BoJ-RBA expectations and a softer risk tone might cap gains for spot prices.

The AUD/JPY cross rebounds sharply from the 97.20 area, or a two-week low touched during the Asian session on Wednesday, following the release of monthly consumer inflation figures from Australia. Spot prices rally to a fresh weekly high in the last hour, with bulls now awaiting a sustained move beyond the 98.00 mark before placing fresh bets.

The latest data published by the Australian Bureau of Statistics (ABS) showed that the headline Consumer Price Index (CPI) rose 3.0% in the year to August, compared to a 2.8% increase reported in the previous month. The reading was slightly higher than the 2.9% expected and reaffirms bets that the Reserve Bank of Australia (RBA) will skip a move in interest rates next week. This, in turn, provides a goodish lift to the Australian Dollar (AUD), which, along with a broader weaker Japanese Yen (JPY), acts as a tailwind for the AUD/JPY cross.

The S&P Global flash Japan Manufacturing Purchasing Managers' Index (PMI) registered its steepest decline since March and fell to 48.4 in September from 49.7 in the previous month. This comes amid concerns about economic headwinds stemming from US tariffs and domestic political uncertainty, which could give the Bank of Japan (BoJ) reasons to delay raising interest rates and undermine the JPY. Investors, however, are still pricing in the possibility of a 25-basis-point rate hike by the BoJ in October amid signs of economic resilience.

In contrast, odds for an RBA rate cut in November stand at 70%, which marks a big divergence in comparison to hawkish BoJ expectations. Apart from this, a slight deterioration in the global risk sentiment could offer some support to the safe-haven JPY and cap gains for the risk-sensitive Aussie. This, in turn, warrants some caution before confirming that the AUD/JPY pair's corrective slide from the vicinity of mid-98.00s, or the highest level since January, retested last week, has run its course and positioning for any further appreciation.