Yen steadies as intervention boost fades; RBA in focus

The yen steadied on Tuesday following a significant decline in the previous session, as the coordinated US-Japan intervention proved ineffective in maintaining a lasting boost. Meanwhile, the Australian dollar reached an eight-week high in anticipation of a policy decision from the nation's central bank. The yen appreciated to 158.93 per US dollar in Asian trading hours, although it remained below the three-month peak of 155.20, reached last week after the rare US-Japan yen-buying intervention at the end of July.

The joint effort followed the yen's plummet to a 40-year low of 163.99 per dollar, but the currency has since recouped almost half of its gains, leaving traders to speculate about potential future intervention. Marc Chandler, chief market strategist at Bannockburn Capital Markets, commented on the market's skepticism towards Japanese and US officials' determination.

Trading activity was lighter than usual, with Japanese markets closed for a holiday. Speculators reduced their bearish bets on the Japanese yen to the lowest level in over a decade, with the net short position falling by $8.865 billion to $3.604 billion in the week ending August 4. However, analysts predict that speculators will likely attempt to rebuild their short positions, as seen in previous intervention episodes.

ING strategists caution that a return to 160.00 by this month is a realistic risk, even if September sees both a Bank of Japan rate hike and a pause from the US Federal Reserve. Traders currently assign a slightly over 50% probability of a BOJ rate hike, according to LSEG data. The BOJ's tightening trajectory is further complicated by mounting political pressure to support the bond market.

During the day, traders will be watching for the Reserve Bank of Australia's policy decision, where officials are expected to maintain the current cash rate, with focus on comments from policymakers. The Australian dollar is currently trading at $0.7057. The US dollar remained stable against most major currencies while oil prices hovered near one-week highs due to dwindling hopes for a deal between the US and Iran to end the conflict in the Middle East.

The euro was at $1.1544, and sterling was at $1.3509 in Asian trading hours. Attention will also turn to Wednesday's US consumer price index data, which could reveal the impact of the war on pricing pressures. Producer price data on Thursday and retail sales figures on Friday will provide additional insights into the trajectory of inflation.