LONDON, Aug 1 Reuters The Australian dollar fell sharply on Tuesday after the Reserve Bank of Australia left cash rates unchanged, while the yen fell to a threeweek low as the Bank of Japan39;s steps last week to tweak its yield curve control YCC policy continued to weigh on the currency.

The Australian dollar was set for its sharpest daily drop in a month after the central bank on Tuesday held interest rates at 4.1 for a second month, saying past hikes were cooling demand but some more tightening might be needed to curb inflation.

The Aussie fell 1.4 to 0.6626, wiping out the 0.87 gains it clocked in July and set for its sharpest daily drop since March.

Matt Simpson, senior analyst at City Index, said the Aussie move suggested not everyone was positioned for the RBA39;s hold, noting that weakerthanexpected data from China also weighed on the risksensitive currency.

I think it was right that the RBA held today, given trimmed mean inflation and unemployment matched the RBA39;s forecasts. And it may have sent a confusing message had they hiked following softer inflation and retail trade data.

The yen last fetched 142.97, down 0.5 to its lowest in three weeks.

The Asian currency has been on a wild ride since Friday, when the BOJ began what may become a slow shift away from decades of massive monetary stimulus, saying it would offer to buy 10year Japanese government bonds at 1.0 in fixedrate operations instead of the previous rate of 0.5.

Markets could test just how…