RBA Rate Hike Decision Hangs in Balance as Aussie and Yen Markets Await Key Inflation Data

The upcoming release of Australia's July Consumer Price Index (CPI) on August 26 is set to be a key event in determining whether the Reserve Bank of Australia (RBA) will raise interest rates by year-end.

AUD/JPY has been trading within a narrow range, with some support from rising crude oil prices and the RBA's indication that inflation trends will influence future rate hike decisions. However, the market remains priced for a nearly 60% probability of a year-end rate hike, which could boost the Australian dollar.

The US PCE deflator on August 26 is also expected to have a significant impact on USD/JPY, with a strong reading pushing the pair towards a test of the 160 level. Conversely, if disinflation becomes more pronounced, US yields may fall, increasing the risk of a break below 158.