AUD/JPY loses momentum near 94.30 after the weaker Chinese data, RBA rate decision eyed

• AUD/JPY drops to 94.25 following the weaker Chinese Services PMI data.
• RBA will maintain its benchmark interest rate at 4.10% on Tuesday.
• Japanese household spending suffered its largest decline in nearly two and a half years.
• Market players await the Reserve Bank of Australia (RBA) interest rate decision, Australia’s GDP.

The AUD/JPY cross loses traction near 94.25 during the Asian trading hours on Tuesday. The weaker-than-expected Chinese PMI data drags the Aussie lower. Investors await the key event, the Reserve Bank of Australia (RBA) interest rate decision. This event might trigger volatility in the Australian Dollar (AUD) in the next session.

RBA is likely to maintain its benchmark interest rate at 4.10% on Tuesday as inflation eases, according to a Reuters poll. However, market players anticipate that the central bank will maintain its hawkish stance and open the door for additional rate hikes.

The latest data from Caixin on Tuesday showed that the Chinese Services Purchasing Managers' Index (PMI) declined to 51.8 in August from 54.1 in July. The downbeat Chinese exert some selling pressure on the AUD as investors perceive the Aussie as a proxy for the Chinese economy.

As a result of growing prices, Japanese household expenditure suffered its largest decline in nearly two and a half years. Tuesday's data showed that household spending plunged 5.0% YoY in July, worse-than-expected of a 2.5% drop. This figure marked the fall for the fifth consecutive month. The Bank of Japan (BOJ) maintains its loose monetary policy while shifting away from yield curve control. BoJ Board member Toyoaki Nakamura said last week that policymakers need more time to transition to monetary tightening. That said, the monetary policy gap between Australia and Japan might cap the downside of the AUD/JPY cross for the time being.

Market participants will closely watch the Reserve Bank of Australia (RBA) interest rate decision later on Tuesday. RBA is expected to maintain its key interest rate unchanged at 4.10% on its Wednesday’s meeting. The attention will shift to the Australian Gross Domestic Product (GDP) for the second quarter due on Wednesday. The quarterly growth number is expected to grow 0.3%. On Friday, the Japanese GDP for Q2 will be released. Traders will take cues from these data and find trading opportunities around the AUD/JPY cross.