AUD/USD, NZD/USD, and USD/JPY: Recession Fears and Rate Cut Bets Drive Volatility

AUD/USD Under Pressure Amid Recession Fears and China Tariff Risks

The AUD/USD pair recovered slightly to $0.6050 during the early Tuesday Asian session. However, the US Dollar remains stronger amid rising fears of a US recession triggered by President Trump’s sweeping tariffs on key trading partners. This risk-off sentiment has added pressure on the Australian Dollar as investors seek safer assets.

According to the CME FedWatch tool, markets now see a 65% chance of a Fed rate cut in May. Meanwhile, the RBA is expected to cut rates by 25 basis points in May, with a 50 bps cut also possible. The prospect of aggressive easing from both central banks keeps AUD/USD under pressure. China-related risks add a slight downside bias for the Aussie.

On Friday, China announced a 34% counter-tariff on US imports, effective Thursday, in retaliation to Trump tariffs. This escalation in the trade war between the US and China threatens to hurt Australia’s economy, as China is Australia’s largest trading partner. The rising trade tensions are likely to weigh further on the Australian Dollar, which often acts as a proxy for China-related sentiment.

Japanese Yen Gains on Safe-Haven Demand Amid Tariff Tensions

The USD/JPY pair opened lower with a gap this week but filled the gap on Monday. The pair remains weak despite the rebound due to strong safe-haven demand for the Japanese Yen. While there are concerns that US tariffs could impact Japan’s economy, expectations for Bank of Japan rate hikes in 2025 continue to support the JPY. The chart below shows Japanese wage growth rising to 3.1% year-on-year in February. This increase and strong spring wage agreements averaging 5.47% reinforce the BoJ’s hawkish outlook.

Meanwhile, market sentiment has turned sharply against the US Dollar due to escalating trade tensions. President Trump’s threat of an additional 50% tariff on China—on top of the 34% retaliatory import fee—has heightened fears of a global recession. As a result, traders now expect the Federal Reserve to deliver at least four rate cuts by the end of 2025, beginning as early as June. This growing divergence between expected Fed easing and BoJ tightening has pressured USD/JPY and attracted dip buyers to the Yen.

The Fed’s dovish outlook has stalled a two-day recovery in the US Dollar. Chair Powell’s comments on inflation risks added to the pressure. The market also reacted to a 1.2% drop in real wages in Japan, showing inflation challenges. However, the data still supports the normalization of BoJ’s policy. With no major US data due on Tuesday, USD/JPY may stay under pressure. Upcoming Fed minutes and CPI data could further tilt the bias toward Yen strength.

AUD/USD Technical Analysis – Volatility

The 4-hour chart for AUD/USD shows that the pair has reached strong support at $0.5950 and continues to consolidate within a wide range around this level. It failed to break above $0.6450, the upper boundary of an ascending broadening wedge pattern, which indicates heightened volatility. A strong rebound is likely from the $0.5950 area, as this level remains a key long-term support zone.

NZD/USD Technical Analysis – Volatility

NZD/USD failed to break above $0.5850 and has dropped to long-term support near $0.55. A rebound is likely from this zone, as it represents a key support region. Additionally, the emergence of a symmetrical broadening wedge and repeated failure to break above $0.5850 have kept the pair trading in a highly volatile range. Therefore, any rebound from the $0.55 level could be strong.

USD/JPY Technical Analysis – Falling Wedge

The USD/JPY pair trades within a falling wedge pattern after failing to break above the $151 level. This failure has kept the pair in a downward trend. Monday’s rebound was driven by extreme oversold conditions, as indicated by the RSI. However, the pair remains uncertain due to economic risks stemming from the new tariff announcement on April 4. A move below $145 could lead the pair toward $141, where the next potential upside move may develop.