AUD/JPY: Recovery stalls after China inflation data

• AUD/JPY trades at 76.46 versus 76.11 in early Asia. 
• China's factory-gate deflation eased in August but fails to draw bids for the AUD. 
• Risk-off looks to be capping the upside in the AUD/JPY pair. 

AUD/JPY is struggling to draw bids despite signs of easing in factory-gate deflation in China. 

The data released at 01:30 GMT showed China's Producer Price Index or factory-gate inflation fell 2% year-on-year in August, as expected, following July's 2.4% decline. 

The Consumer Price Index rose 0.4% month-on-month in August as expected versus July's 0.6% rise. In annualized terms, consumer inflation rose 2.4%. 

Fresh evidence of a slowdown in decline in factory-gate prices is good news for the Aussie dollar and other commodity-linked currencies. So far, however, AUD/JPY has had a tough time extending the pre-data recovery from 76.11 to 76.47. 

The risk-off action in the global equities could be capping the upside in the AUD/JPY pair. The US stocks fell by over 2% on Tuesday, and the futures tied to the major European equity indices are currently reporting moderate losses. 

Further, negative news on the coronavirus vaccine front and Sino-US tensions could be playing spoilsport. As per the latest reports, AstraZeneca's COVID-19 vaccine trial has been paused due to an adverse reaction in a person and the US is considering banning some or all products made with cotton from China’s Xinjiang province.

Looking ahead, the buying interest around the AUD would strengthen if the risk sentiment strengthens – more so, as the data released early Wednesday showed Australia's consumer confidence surged in August. The Westpac-Melbourne Institute index of consumer sentiment jumped 18% in September from August's 9.5% drop. 

Technical levels