AUD/USD, NZD/USD, and USD/JPY: Inflation and Employment Data in Focus

Aussie Holds Support as Traders Eye Economic Reports

The AUD/USD pair rebounds from its long-term support zone on Monday. Despite the US Dollar’s strength, the Australian Dollar gains as traders reassess market conditions. The US Dollar Index climbed to a two-year high above 110.00, supported by robust economic conditions reflected in strong employment data. The strong labor market data has bolstered the US Dollar by lowering expectations of dovish actions from the Federal Reserve. Market focus now shifts to the US Consumer Price Index (CPI) data, which could further influence the AUD/USD pair.

On the other hand, the Australian dollar market anticipates a potential Reserve Bank of Australia (RBA) rate cut in February. The market focus now shifts to the Australian employment data due on Thursday. Forecasts suggest only 14.5K jobs in December, compared to 35.6K in November. The chart below highlights a significant drop in the unemployment rate to 3.9% in November 2024, alongside positive employment change.

A weaker employment report could further pressure the Australian Dollar, especially as Australia’s labor market faces challenges. However, the price currently trades at a technical support level, and a strong rebound from this area remains possible.

Japanese Yen Faces Uncertainty Amid BoJ Decision

The Japanese Yen remains under pressure due to uncertainty surrounding the Bank of Japan’s (BoJ) monetary policy. Speculation suggests that the BoJ may delay its next rate hike until April, awaiting confirmation of sustained wage growth during the spring labor negotiations. BoJ Deputy Governor Ryozo Himino emphasized the central bank’s cautious stance, highlighting the need to evaluate domestic and international risks before taking action.

This uncertainty and Himino’s focus on monitoring short-term economic activity, prices, and financial conditions continue to weaken the JPY. The pair’s movements reflect investor reactions to these developments.

On the other hand, the US Dollar remains strong and carries the strength in the USD/JPY. Therefore, the USD/JPY has pushed upward within the bullish trend. Moreover, reports of US President-elect Donald Trump’s administration considering phased import tariff increases have boosted market confidence.

The chart below illustrates the Chicago Fed Financial Conditions Index, which has declined to -0.598. This decline reflects a continuation of easy monetary conditions in the financial system. The negative value suggests that liquidity remains abundant and borrowing conditions are favorable.

However, liquidity injections from the Federal Reserve are nearing their limit, with reverse repo (RRP) liabilities declining to $185 billion after money market funds shifted over $2 trillion into T-bills. These dynamics create a complex interplay and uncertainty in the USD/JPY pair. Market focus now shifts to the upcoming US PPI and US CPI data releases this week, which may provide further direction for USD/JPY, AUD/USD, and NZD/USD.

AUD/USD Analysis – Descending Channel

The 4-hour chart for AUD/USD indicates that the pair is trading within a descending channel, showing bearish momentum. The price is confined within the 3-month and 4-month descending channels, as depicted by the red and black trend lines. Despite this bearish momentum, the price has approached the orange area, representing a strong long-term support zone between $0.6040 and $0.6170. The pair rebounds from this support, as evidenced by the RSI recovering from oversold levels.

NZD/USD Analysis – Symmetrical Broadening Wedge Pattern

The 4-hour chart for NZD/USD shows that the pair is trading within a descending channel, indicating bearish pressure. The pair approached the long-term support zone of $0.55 to $0.56 and initiated a rebound from this zone. The RSI also rebounded from oversold levels, suggesting that the price may find support. The emergence of a symmetrical broadening wedge at the lower support band indicates strong volatility and highlights the potential for a significant rebound.

USD/JPY Analysis – Ascending Channel

The 4-hour chart for USD/JPY shows that the pair formed an inverted head and shoulders pattern in December, initiating a strong upward rally. The emergence of an ascending channel at higher levels indicates a bullish continuation. If the price remains above $155.80, the pair will likely continue moving higher. The formation of the inverted head and shoulders pattern, followed by consolidation at higher levels, highlights the potential for an upward breakout.