The Australian Dollar (AUD) remained stable near 0.7060 against the US Dollar (USD) on Monday, following six consecutive weeks of gains, as markets await the Reserve Bank of Australia (RBA) rate decision scheduled for Tuesday. The RBA is widely expected to keep its cash rate unchanged at 4.35%, after raising rates from 3.60% earlier in 2026. Investors are keenly watching for signals from Governor Michelle Bullock and the updated forecasts in the Statement on Monetary Policy to determine whether further hikes are possible or if the peak rate has been reached [1][2]. Rabobank analysts note that while the three hikes this year may not fully address excess demand, policymakers are expected to hold rates unchanged, a view shared by all 31 economists surveyed by Bloomberg [2].
AUD/JPY rose 0.70% on Monday, trading around 112.25, driven primarily by broad weakness in the Japanese Yen (JPY). The Yen came under pressure after Japan's current account unexpectedly swung to a ¥92.3B deficit in June, compared to expectations for a ¥1,512B surplus. The Ministry of Finance attributed this to higher oil prices and significant dividend payments to foreign investors. Japan's fiscal outlook remains a concern, with public debt exceeding 200% of GDP and expansionary policies fueling worries about long-term debt sustainability. Despite the Bank of Japan's (BoJ) tightening bias and growing market expectations for a possible September rate hike, structural headwinds have limited the impact of recent interventions to support the Yen [2].
On the technical front, AUD/USD maintains a modest bullish tone, trading above both the 20-period SMA at 0.7050 and the 100-period SMA at 0.7007, with resistance at 0.7064 and support at 0.7057 and 0.7054. The Relative Strength Index (RSI) around 59 suggests firm but not overextended upside momentum [1]. Meanwhile, the US Dollar's recent weakness, following a disappointing July Nonfarm Payrolls report (a fall of 23,000 jobs versus an expected 80,000 gain), has helped the AUD hold its ground. The US Consumer Price Index (CPI) release on Wednesday is seen as a key catalyst, with a hot reading potentially strengthening the USD and squeezing AUD/USD, while a soft print could allow the Aussie to maintain its range [1].
ING's Francesco Pesole highlights that despite softer US data and a dovish Fed outlook, the Yen remains vulnerable due to the rebuilding of JPY shorts after intervention and limited impact from BoJ hike expectations. USD/JPY has returned to the 158.30-158.50 area, with a tangible risk of retesting the 160.0 level this month. Pesole advises monitoring dovish Fed signals and BoJ policy developments, noting that choppy trading is likely for USD/JPY [3]. BNY analysts add that inflation risks and fiscal concerns are pushing long-dated Japanese government bond yields higher, with markets pricing in roughly a 50% chance of a 25bp BoJ hike in September and a full hike by year-end [2].
The Australian Dollar faces some pressure from China, as annual consumer inflation slowed to a six-month low in July and producer price inflation eased more sharply than expected. However, persistent Yen weakness remains the main driver behind AUD/JPY's advance [2].
CONCLUSION
The Australian Dollar is holding steady ahead of the RBA's widely anticipated rate hold, with market focus on upcoming policy signals and US inflation data. The Japanese Yen continues to weaken amid fiscal concerns and a surprise current account deficit, despite expectations for BoJ tightening. Market sentiment remains cautious, with analysts highlighting risks of further Yen depreciation and choppy trading in USD/JPY.