AUD/JPY surges to near 102.00 due to hawkish RBA ahead of policy decision

• AUD/JPY gains ground due to hawkish sentiment surrounding the RBA.
• RBA is expected to maintain the cash rate at a 12-year high of 4.35% on Tuesday.
• Japanese markets are closed on Monday due to a national holiday, with the potential for intervention by Japanese authorities.

AUD/JPY continues to gain ground, trading around 101.90 during the European trading hours on Monday, buoyed by a hawkish sentiment surrounding the Reserve Bank of Australia (RBA). This investor sentiment bolsters the strength of the Aussie Dollar, providing support to the AUD/JPY cross.

The Australian central bank is widely expected to maintain the cash rate at a 12-year high of 4.35% in its upcoming Tuesday meeting. However, there are anticipations that it might reintroduce a soft tightening bias, especially following last week's inflation data, which surpassed expectations, as reported by The Australian Financial Review.

Australia's inflation declined in the first quarter, marking the fifth consecutive quarter of slowing, although it exceeded forecasts. Additionally, the country's monthly CPI indicator accelerated in March, contrary to market expectations of no change.

On Monday, the Japanese market is closed due to a national holiday, with intervention risks lingering. Last week, the Japanese Yen (JPY) appreciated amidst potential government intervention by Japanese authorities. Reuters reported that data from the Bank of Japan (BoJ) indicated that Japanese authorities may have allocated approximately ¥6.0 trillion on April 29 and ¥3.66 trillion on May 1 to reinforce the JPY.

The perceived market intervention by Japanese authorities provided only temporary relief, as the underlying market fundamentals continue to weigh bearishly on the Japanese Yen. Throughout this year, the JPY has faced pressure due to the Bank of Japan maintaining ultra-low interest rates despite elevated borrowing costs abroad. Consequently, traders have been incentivized to borrow the domestic currency and invest in higher-yielding foreign currencies.