AUD/JPY plummets to three-week low, further below 97.00 after RBA’s on hold rate decision

• AUD/JPY drifts lower for the second straight day and dives to a three-week low on Tuesday.
• The RBA decided to keep its benchmark interest rate unchanged, as was widely anticipated.
• The accompanying policy statement weighs on the Aussie amid a generally softer risk tone.

The AUD/JPY cross remains under some selling pressure for the second successive day on Tuesday and touches a three-week trough during the Asian session. The downward trajectory picked up pace after the Reserve Bank of Australia (RBA) announced its policy decision and dragged spot prices further below the 97.00 round-figure mark.

As was widely anticipated, the Australian central bank decided to keep the Official Cash Rate (OCR) unchanged at the end of the December meeting. In the accompanying policy statement, the RBA noted that the monthly CPI indicator for October suggested that inflation is continuing to moderate and conditions in the labour market, though remaining tight, also continued to ease gradually. This suggested that additional rate hikes might be off the table and prompted fresh selling around the Australian Dollar (AUD).

The Japanese Yen (JPY), on the other hand, draws support from the growing market conviction that the Bank of Japan (BoJ) will begin tightening its ultra-loose policy and end its yield curve control measures during the first few months of 2024. Apart from this, the risk-off impulse, as depicted by a generally weaker tone around the equity markets, is seen as another factor benefitting the JPY's relative safe-haven status against the perceived riskier Aussie. This further contributes to the offered tone surrounding the AUD/JPY cross.

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