• AUD/JPY drifts lower on Tuesday and snaps a two-day winning streak to a multi-week top.
• The RBA's surprise decision to leave interest rates steady weighs on the Australian Dollar.
• The BoJ’s unscheduled bond-buying operation undermines the JPY and lends some support.

The AUD/JPY cross meets with some supply during the Asian session on Tuesday and drops to a fresh daily low, around the 95.00 psychological mark after the Reserve Bank of Australia (RBA) announced its policy decision.

The Australian Dollar (AUD) weakens a bit in reaction to the RBA's decision to leave the Official Cash Rate (OCR) unchanged at 4.10% for the second straight meeting, defying market expectations for a 25 bps lift-off. In the accompanying policy statement, the RBA said that the decision to hold rates unchanged provides further time to assess the impact of the increase in interest rates to date and the economic outlook. This, along with the weaker Chinese macro data released earlier today, turns out to be a key factor exerting some pressure on the AUD/JPY cross.

That said, the latest optimism over hopes for more stimulus from China remains supportive of the underlying bullish sentiment around the equity markets and lends some support to the risk-sensitive Aussie. Moreover, the RBA added that inflation in Australia is declining but is still too high and some further tightening of monetary policy may be required to ensure that it returns to target in a reasonable timeframe. Apart from this, some follow-through selling around the Japanese Yen (JPY) helps limit the downside for the AUD/JPY cross, at least for now.

Against the backdrop of the prevalent risk-on mood, the Bank of Japan's unscheduled operation on Monday to buy ¥300 billion ($2 billion) worth of Japanese government bonds (JGB) for the first time since February 2022 continues to weigh on the JPY. This, in turn, warrants some caution before placing aggressive bearish bets around the AUD/JPY cross and confirming that the recent strong recovery move from the 91.80-91.75 region, or a nearly two-month low touched last week has run its course. Nevertheless, spot prices, for now, seem to have snapped a two-day winning streak to a three-week peak, around the 95.80-95.85 zone touched on Monday.

Technical levels to watch