AUD/USD, NZD/USD, and USD/JPY: Diverging Trends Fueled by Inflation and Policy Shifts

AUD/USD Gains Traction Amid Strong Employment Data and US Inflation

The US dollar index (DXY) dropped following the release of December’s inflation data, reaching multi-day lows. The headline CPI rose 2.9% annually, aligning with expectations. However, the core CPI shows slower growth of 3.2% year-over-year and was below forecasts. This divergence has increased uncertainty about the Federal Reserve’s policy direction and contributed to heightened volatility in the US markets. The chart below illustrates the rising trend in CPI and PPI data from recent lows.

US Treasury yields fell from the key resistance level of 4.80% after the CPI release but remain elevated due to persistent concerns about long-term inflation risks. Higher long-term yields suggest that investors continue to anticipate sustained inflationary pressures.

Meanwhile, Australia’s unemployment rate rose to 4.0% in December from 3.9% in November, in line with market expectations. Employment change jumped to 56.3K, surpassing the forecast of 15.0K, driven by an 80K increase in part-time jobs despite a 23.7K decline in full-time positions. The chart below highlights the upward trend in employment change during the last quarter of 2024.

Moreover, the participation rate rose to 67.1%, reflecting a growing labor force. These mixed figures demonstrate resilience in the job market but emphasize shifting dynamics between full-time and part-time employment. After the release of the employment data, AUD/USD and NZD/USD gained traction and continued to consolidate near the resistance level.

USD/JPY Slides as Yen Gains on BoJ Hawkishness

USD/JPY dropped from the $158 level as the Japanese yen gained strength. The correction in the US Dollar Index after the CPI data release further fueled this decline. The yen’s strength was driven by hawkish remarks from BoJ Governor Kazuo Ueda, who emphasized potential rate hikes and the importance of Spring wage talks. Market expectations for a BoJ policy rate increase have risen, with 18 basis points of tightening now priced in. The yen continues to outperform amid growing speculation of a shift in BoJ policy. The short-term trend for USD/JPY remains downward, with the market awaiting US retail sales data for further direction.

AUD/USD Analysis – Descending Channel

The 4-hour chart below shows that AUD/USD is trading within a descending channel pattern and has recently recovered from support. This price recovery followed a sharp correction in the US dollar after the release of US inflation data. The pair has broken above the red-dotted channel and is now approaching the black trendline of the channel near $0.6250. A break above this level could pave the way for higher prices. Additionally, the RSI is rebounding from lower support, indicating that the pair will likely maintain its strength.

NZD/USD Analysis – Symmetrical Broadening Wedge Pattern

The 4-hour chart below shows that NZD/USD remains within a descending channel and has rebounded from its channel support. The pair trades within a symmetrical broadening wedge pattern approaching the $0.5710 level. A breakout above the descending channel at $0.5650 would signal the end of the channel’s downtrend and could open the door for higher prices in NZD/USD.

USD/JPY Analysis – Under Pressure

The USD/JPY pair has dropped from the resistance area toward the support of the red trendline around $155.80 due to a correction in the US dollar and weakness in the Japanese Yen. The pair has approached the short-term support region near the $155 zone, where the RSI is oversold. However, the short-term trend suggests that the pair may break below $155.80 and continue to trade lower.