AUD/JPY corrects from over one-week top after RBA’s decision to leave rates unchanged

• AUD/JPY comes under intense selling pressure in reaction to the RBA’s surprise pause.
• Speculation fears lend some support to the JPY and contribute to the intraday slide.
• The BoJ’s dovish stance acts as a headwind for the JPY and helps limit further losses.

The AUD/JPY cross attracts heavy selling near the 96.70 area, or over a one-week high touched earlier this Tuesday and drops to a fresh daily low after the Reserve Bank of Australia (RBA) announced its policy decision. Spot prices currently trade just above the 96.00 round-figure mark and for now, seem to have snapped a three-day winning streak.

The Australian Dollar (AUD) weakens across the board after the RBA board members decided to leave the Official Cash Rate (OCR) unchanged at 4.10%. This seems to have disappointed a fraction of market participants anticipating another 25 bps lift-off, which, in turn, is seen as a key factor weighing on the AUD/JPY cross. Furthermore, worries about a global economic downturn, particularly in China, further contribute to the offered tone surrounding the risk-sensitive Aussie.

The Japanese Yen (JPY), on the other hand, draws some support from speculations that authorities will intervene in the markets to stem any further weakness in the domestic currency. In fact, Japan's Finance Minister Shunichi Suzuki warned last week that the government will take appropriate steps should the Japanese Yen (JPY) weaken excessively. Suzuki added this Tuesday that the government is keeping in close contact with the US at the vice-ministerial level on FX.

That said, a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks might cap the JPY, which, in turn, could limit losses for the AUD/JPY cross. Investors seem convinced that the BoJ will stick to its ultra-ease monetary policy stance 
in the wake of a view that inflation will slow later this year. Moreover, the BoJ has pledged to patiently sustain stimulus and focus on supporting a fragile economic recovery.

The aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through selling before traders start positioning for the resumption of the AUD/JPY pair's recent pullback from its highest level since September 2022. Bullish traders, meanwhile, might now wait for a sustained strength beyond the 96.70-96.80 horizontal barrier before placing fresh bets and a possible move back towards challenging the 97.55-97.65 supply zone, or the YTD peak.

Technical levels to watch