AUD/JPY falls to near 96.00 as RBA rate cut expectations weigh

• AUD/JPY depreciates as traders expect the RBA to deliver a 25 basis point rate cut on Tuesday.
• The RBA is widely expected to cut interest rates after core inflation eased to 2.7% in June.
• Traders remain uncertain regarding the Bank of Japan's interest rate hikes.

AUD/JPY halts its four-day winning streak, trading around 96.00 during the European hours on Monday. The currency cross depreciates as the Australian Dollar (AUD) faces challenges due to market caution ahead of the interest rate decision by the Reserve Bank of Australia due on Tuesday.

Traders are pricing in that the Reserve Bank of Australia (RBA) will deliver a 25 basis point (bps) interest rate cut, bringing its Official Cash Rate (OCR) to 3.6% from 3.85% at its August meeting. The RBA is widely anticipated to reduce interest rates as core inflation eased to 2.7% in June, well within the RBA's 2-3% target, along with rising unemployment and slowing wage growth.

However, the Australian central bank adopted a cautious stance in July, pointing to a more balanced view of inflation risks and ongoing labor market strength. Governor Michele Bullock stated following the July decision that the central bank would no longer offer forward guidance, stressing that decisions lie solely with the board and cannot be predicted before meetings.

Additionally, the AUD/JPY cross depreciates as the Japanese Yen (JPY) receives support, while mixed sentiment surrounds the Bank of Japan's (BoJ) interest rate hikes. The BoJ Minutes for the July meeting indicated that board members continue to maintain their view that further interest rate increases remain appropriate, despite heightened uncertainty surrounding tariffs.

However, BoJ's Summary of Opinions suggests that policymakers remain uncertain about the potential negative impact of higher US tariffs on the domestic economy, tempering expectations for an immediate rate hike.