AUD/JPY depreciates to near 100.50, downside appears limited due to hawkish RBA

• AUD/JPY loses ground despite a hawkish sentiment surrounding the RBA regarding its policy outlook.
• The Australian Dollar may limit its downside as an RBA rate cut is unlikely in the near term.
• The Japanese Yen may depreciate as the loss of the LDP coalition has increased uncertainty regarding the BoJ rate-hike plans.

AUD/JPY retraces its recent gains from the previous session, trading around 100.50 during the early European hours on Tuesday. The downside of the AUD/JPY cross could be limited due to the Reserve Bank of Australia's (RBA) hawkish stance on its policy outlook.

The Reserve Bank of Australia has indicated that the current cash rate of 4.35% is restrictive enough to steer inflation back within the target range of 2%-3% while still supporting employment. Consequently, a rate cut is unlikely in the near term, especially as early as next month.

Traders are now focused on Australia’s third-quarter Consumer Price Index (CPI) data, due for release on Wednesday, as they seek further insights into the RBA’s potential monetary policy direction.

On the JPY’s front, Japan’s Liberal Democratic Party (LDP)-coalition lost its parliamentary majority in Sunday's election, which has increased uncertainty regarding the Bank of Japan's (BoJ) rate-hike plans, which puts downward pressure on the Japanese Yen (JPY).

The Bank of Japan’s interest rate decision is set to be the focal point on Thursday, with nearly 86% of economists surveyed by Reuters expecting the central bank to maintain its current rates at the October meeting.

On Tuesday, Japan’s Finance Minister Katsunobu Kato stated that he is “closely watching FX movements, including those driven by speculators, with heightened vigilance,” but refrained from commenting on specific forex levels. Kato emphasized the importance of stable currency movements that reflect economic fundamentals.