AUD/JPY holds below 94.50 as traders await RBA rate decision

• AUD/JPY weakens to around 94.40 in Monday’s early European session. 

• The RBA is widely anticipated to cut the cash rate by another quarter point on Tuesday. 

• Japan's real wages fell 2.9% in May, the sharpest fall in nearly 2 years. 

The AUD/JPY cross loses ground to near 94.40 during the early European session on Monday. The Australian Dollar (AUD) weakens against the Japanese Yen as the Reserve Bank of Australia (RBA) is widely expected to cut its Official Cash Rate (OCR) by another quarter point on Tuesday. 

Markets anticipate the RBA to deliver a rate cut by 25 basis points (bps) at the July meeting on Tuesday amid a cooling in inflation and an uncertain growth outlook. This move would bring its OCR down to 3.60% from 3.85%. Traders in financial markets are now pricing in consecutive 25 bps rate reductions in July and August, followed by a third by November. "Forward guidance is expected to sound dovish, leaving the door open for further rate cuts into year-end,” said IG analyst Tony Sycamore. RBA rate cut bets might undermine the Aussie against the JPY in the near term.

US President Donald Trump said on Saturday that his administration is close to finalizing several trade deals in the coming days, while he will name some dozen countries later on Monday that are receiving letters with their new, higher levies. Trump added that the rates in the letters would go into effect August 1 and warned some could be as high as 70%. The renewed tariff concerns could boost the safe-haven flows, supporting the JPY against the Aussie. 

On the other hand, government data showed Monday that Japan's real wages fell 2.9% in May from a year earlier as pay growth continued to lag behind persistent inflation. This figure registered the fifth consecutive monthly decline and the sharpest drop in nearly two years. This report could drag the JPY lower and create a tailwind for the cross.