AUD/JPY Plunges to Two-Week Low as RBA's Cautious Hike Disappoints

The Australian Dollar (AUD) took a hit on Tuesday after the Reserve Bank of Australia's cautious rate hike. Spot prices for AUD/JPY dropped to an over two-week low as traders reacted little to the RBA's decision, which was already priced in the market.

RBA Governor Michele Bullock failed to reinforce expectations that inflation developments would require additional tightening, leading to a trimming of bets for more rate hikes. This undermined the AUD and put pressure on the AUD/JPY cross.

The Japanese Yen (JPY) received support from hawkish Bank of Japan (BoJ) bets and warnings from top currency diplomat Atsushi Mimura and Finance Minister Satsuki Katayama about taking joint US-Japan messaging on FX depreciation seriously. The BoJ's July monetary policy meeting minutes revealed policymakers debated faster interest rate hikes amid growing concern over inflation risks.

The AUD/JPY cross remains in a bearish fundamental backdrop, with the path of least resistance pointing to further depreciating moves for spot prices.