AUD/JPY drops below 88.00 on weaker-than-expected Aussie CPI

• Aussie offered following the CPI release.
• AUD/JPY prints session lows below 4-hr 200-MA.

The Aussie dollar took a beating across the board after the Australia Burea of Statistics reported a weaker than expected fourth quarter CPI inflation figures.

The AUD/JPY cross fell from 88.15 to 87.65 post-CPI release and was last seen trading at the 4-hour 200-MA level of 87.74.

The consumer price index (CPI) rose 0.6 percent in the December quarter and 1.9 percent on an annual basis, the ABS said today. The markets had been expecting a 0.7 percent inflation print for the fourth quarter and a 2.0 percent annual reading.

Also, the RBA's trimmed mean rose 0.4 percent on quarter and 1.8 percent on an annual basis, again missing the market forecasts of 0.5 percent and 1.9 percent, respectively. The trimmed mean stays just below RBA's 2%-3% y/y (flexible) target band. So, the central bank is unlikely to join the hawkish G7 bandwagon anytime soon.

That said, the AUD/JPY cross looks set to test 87.21 - double top neckline support - in the short-run.

AUD/JPY Technical Levels

A break below 87.71 (Jan. 25 low) would open up downside towards 87.21 (double top neckline). A bearish reversal would be confirmed if the pair closes below the neckline support, thus allowing for a sustained move lower to 86.44 (200-day MA).

On the other hand, a move above 88.51 (Jan. 26 high) would amount to a violation of the falling top pattern. So, bears could be forced to unwind their shorts, leading to a sharp move higher to the resistance zone of 88.80-89.10.