AUD/JPY steadies after earlier drop as RBA keeps rates on hold

Key points

AUD/JPY touched an intraday low of 96.069 on Tuesday after the Reserve Bank of Australia surprisingly kept interest rates on hold at its July meeting following a 25 basis point hike in June.

Later the Forex pair steadied around 96.500.

The RBA kept its cash rate at 4.1% and said it required more time to assess the impact of past rate increases.

Although Australia’s inflation has passed its peak, it still remains too high at 7.0% in Q1.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe,” RBA Governor Philip Lowe said.

The central bank has delivered 400 basis points of hikes since May 2022.

Futures markets have moved to price in a 50% chance of a 25 basis point hike in August.

“This looks a wait and see meeting to gauge of impact from previous tightening,” Dwyfor Evans, head of APAC Macro Strategy at State Street Global Markets, was quoted as saying by Reuters.

“The bias of the remarks are sufficiently hawkish to keep further hikes on the table and ensure August remains a live meeting for policy change.”

Meanwhile, market players were on watch for possible Japan intervention in the Forex market, as the Yen remained vulnerable to further weakness.

Japan’s top financial diplomat Masato Kanda said on Tuesday that officials were in close contact with US Treasury Secretary Janet Yellen and other authorities abroad almost on a daily basis on currencies and broader financial markets.

As of 8:04 GMT on Tuesday AUD/JPY was inching up 0.05% to trade at 96.539. Last week, the minor Forex pair went down as low as 95.152. The latter has been the pair’s weakest level since June 15th (95.088).