AUD/JPY rises to near 97.00 due to stronger commodity prices, risk-on sentiment

• AUD/JPY appreciates as the AUD receives support from rising metals prices.
• The PBoC maintained its one- and five-year Loan Prime Rates at 3.10% and 3.60%, respectively.
• Japan's Core Machinery Orders increased by 3.4% MoM in November, marking the strongest growth in nine months.

AUD/JPY continues to gain ground for the second successive day, trading around 97.00 during the early European hours on Monday. The Australian Dollar (AUD) receives support from stronger commodity prices and a broader risk-on sentiment.

However, the Aussie Dollar could face challenges as market expectations grow that the Reserve Bank of Australia (RBA) might start cutting rates as early as next month. Traders are now focusing on Australia's quarterly inflation report, set to be released next week, for clues about the future direction of interest rates.

The People's Bank of China (PBOC) announced on Monday that it would keep its Loan Prime Rates (LPRs) unchanged. The one-year Loan Prime Rate (LPR) remains at 3.10%, while the five-year LPR stands at 3.60%. Since China and Australia are close trading partners, any shifts in China's economy could have an impact on Australian markets.

However, the upside of the AUD/JPY could be limited as the Japanese Yen (JPY) gains modest support from a rise in Japan's Core Machinery Orders, which increased for the second consecutive month, indicating a continued recovery in capital expenditure. According to government data released earlier this Monday, Core Machinery Orders grew by 3.4% month-on-month in November 2024, marking the strongest growth in nine months.

Additionally, growing speculation that the Bank of Japan (BoJ) will raise interest rates later this week bolstered the JPY. BoJ Governor Kazuo Ueda stated last week that there has been significant optimism regarding wage growth. He reiterated that the central bank would further raise the policy rate this year if economic and price conditions show continued improvement.