AUD/USD, NZD/USD and USD/JPY Outlook: RBA Holds Rates Steady as Inflation Slows

RBA Holds Rates Steady as Inflation Cools

As expected, the Reserve Bank of Australia (RBA) kept its cash rate steady at 4.1%. The central bank maintained a cautious tone and focused on returning inflation to target. It welcomed the decline in core inflation and confirmed that monetary policy remains restrictive. The RBA also left the door open for a possible rate cut in May. This cautious stance has weighed on the Australian Dollar, limiting its upside against major currencies.

The chart below shows that Australia’s annual inflation rate eased to 2.4% in Q4 2024, down from 2.8% in the previous quarter and slightly below the expected 2.5%. This softer-than-expected reading signals a continued slowdown in price pressures. It strengthens the case for the Reserve Bank of Australia to consider rate cuts soon. As rate cut expectations grow, the Australian Dollar may face renewed selling pressure, increasing the downside risk for AUD/USD.

On the other hand, the Japanese Yen gained support from stronger inflation expectations in Japan. The BoJ’s Tankan survey showed businesses raised their forecasts for inflation across all time frames. This increases the likelihood of more rate hikes by the BoJ. As a result, the stronger Yen and rising BoJ rate expectations may add further downward pressure on AUD/USD by weakening overall demand for risk-sensitive currencies like the Australian Dollar.

Japan’s Economic Momentum and Tariff Risks

Japan is emerging from a 30-year battle with deflation. Its economy is now expanding faster than its potential growth rate. The chart below shows that Japan’s industrial production increased by 2.5% in February 2025, surpassing expectations of a 2.3% rise. This growth came after three straight months of decline. It also represents the strongest monthly performance since March 2024. The rebound suggests some recovery in manufacturing activity. This may ease concerns about Japan’s economic momentum and support sentiment around the Japanese Yen. However, the impact on USD/JPY remains limited as markets focus more on broader policy signals and global trade developments.

The Bank of Japan’s March meeting summary highlighted growing global uncertainty. Officials warned that new U.S. policies could affect business and consumer sentiment worldwide. These tariff fears influence expectations for BoJ policy changes. Surveys suggest a possible 25 basis point rate hike in July. However, market pricing does not fully reflect that move within six months. Trump’s planned tariff announcement on April 2 may offer more clarity. Still, the risk of counter-tariffs and drawn-out talks keeps volatility high.

AUD/USD Technical Analysis – Negative Price Action

The AUD/USD pair consolidates within an ascending broadening wedge, indicating strong price volatility. A second ascending broadening wedge has formed and broken to the downside. The pair remains under bearish pressure and appears poised for further decline. A break above $0.6450 is needed to negate this bearish outlook.

NZD/USD Technical Analysis – Resistance

The NZD/USD pair dropped after hitting the resistance of the ascending broadening wedge at $0.58. The decline continued following the rejection at that level. The pair is moving toward the major support zone between $0.55 and $0.56, highlighted by the orange support area.

USD/JPY Technical Analysis – Descending Channel

The 4-hour chart for USD/JPY shows that the pair has recently broken out of the descending channel. As a result, it is now forming bullish price action. Furthermore, this bullish setup is supported by an inverted head and shoulders pattern. If the price breaks above 151, it will likely initiate an upward trend in USD/JPY.