AUD/USD, NZD/USD, and USD/JPY: Impact of China’s Slowdown and US Dollar Strength

China’s manufacturing slowdown is exerting pressure on currency markets, with the Australian dollar (AUD) and New Zealand dollar (NZD) feeling the heat due to their economic ties with China. AUD/USD and NZD/USD pairs are under bearish pressure and approach the strong support zones. Meanwhile, the USD/JPY remains steady, supported by US dollar strength and a wide interest rate differential.

China’s Manufacturing Slowdown Weighs on AUD/USD Sentiment

China’s Caixin Manufacturing PMI fell to 50.5 in December, missing market expectations of 51.7 and down from 51.5 in November. The data underscores slowing growth in new orders and output, alongside slight declines in employment. Despite rising input costs, average selling prices decreased, indicating pressure on profit margins. Moreover, the export demand weakened due to global trade uncertainties, further impacting the manufacturing sector. Similarly, the official PMI dropped slightly to 50.1, reflecting a softening growth momentum in China’s factory activity.

The slowdown in China’s manufacturing sector impacts AUD/USD, as Australia heavily relies on trade with China. A weaker PMI dampens market sentiment toward the Australian dollar, given its strong correlation with Chinese economic performance. The decline in output and demand raises concerns about reduced commodity exports, pressuring the AUD/USD pair. However, the rise in the Non-Manufacturing PMI to 52.2 may provide some short-term support. The AUD/USD pair has dropped to multi-year lows driven by China’s economic slowdown. This decline has also affected the NZD/USD, which remains under intense bearish pressure and is approaching the major support region of $0.55.

Japanese Yen Vulnerable as US Dollar Dominates

The USD/JPY remains range-bound between $156 and $158 during the New Year holidays. Hawkish comments from the Federal Reserve following the December policy meeting have kept the US dollar strong, lifting the USD/JPY higher in December. The broad interest rate differential between the US and Japan supports the pair. With Japanese markets closed for the week, domestic influences are limited, shifting the focus to global factors. This week’s upcoming US S&P Global Manufacturing PMI release will offer further insights into economic trends, potentially impacting the USD/JPY pair.

Bank of Japan Governor Kazuo Ueda’s comments on achieving the 2% inflation target this year have fueled speculation about potential future policy changes. The chart below shows that interest rates have remained steady at 0.25% since July 31st. Meanwhile, Japan’s inflation rate rose to 2.9% in November. However, near-term action from the BoJ appears unlikely, leaving the yen vulnerable to broader market dynamics.

Japan’s Finance Minister has signaled the possibility of interventions to curb excessive currency volatility, emphasizing careful monitoring of forex movements. Despite these efforts, the USD/JPY remains buoyed by the US dollar’s strength, supported by higher yields and resilient economic conditions. In the short term, the pair is likely to gain further strength due to the continued dominance of the US dollar.

AUD/USD Technical Analysis – Descending Channel

The 4-hour chart for AUD/USD shows that the pair has been trading within a descending channel for the past three months. This prolonged price drop within the channel reflects sustained bearish pressure. However, the pair is approaching the lower boundary of support within this channel, around $0.6140. A rebound from this level is expected, which could push the pair toward the $0.6250 zone.

The RSI also declines with a negative slope, indicating that the pair may find support to ease the bearish pressure. The China Manufacturing PMI data had a negligible impact, leaving the pair under continued pressure.

NZD/USD Technical Analysis – Descending Channel

The 4-hour chart for NZD/USD shows the pair trading within a descending channel and approaching the support zone. The significant support lies around the $0.55 area, with the orange area highlighting the support zone for NZD/USD. The pair rebounded from $0.5590 on the first day of 2025, indicating potential for further recovery from this support zone.

USD/JPY Technical Analysis – Consolidations

The 4-hour chart for USD/JPY shows that the pair formed an inverted head-and-shoulders pattern in early December and continued to rally higher. Currently, the pair is consolidating between $156 and $158 while awaiting its next direction. This price consolidation strengthens the possibility of an upside breakout in USD/JPY. A breakout above $158 could push the pair toward the $161.70 level.