AUD/USD, NZD/USD, and USD/JPY Respond to China Growth and BOJ Policy Decisions

Australia’s Services Sector Shows Steady Growth Amid Global Influences

The S&P Global Australia Services PMI increased to 50.8 in December 2024, up from the preliminary estimate of 50.4 and November’s reading of 50.5. This marked the sector’s eleventh consecutive month of growth, driven by stronger market demand. This improvement highlights consistent recovery in the services sector.

Moreover, China’s performance provided additional support to the AUD. The Caixin Services PMI rose to 52.2 in December, surpassing market expectations. Given Australia’s heavy reliance on trade with China, robust growth in China’s services sector directly supports Australian exports and boosts investor confidence.

Meanwhile, Australian manufacturing continues to contract, which could constrain broader economic gains, as shown in the chart below. However, the AUD will likely remain supported by strong service-sector growth and trade ties with a recovering Chinese economy.

Japanese Yen Faces Pressure Amid Economic Uncertainty

The Japanese Yen (JPY) faces challenges amid mixed economic signals and policy uncertainty. The December Jibun Bank Japan Services PMI showed slight growth at 50.9, as shown in the chart below. This is a minor improvement from the previous month but lower than initial projections.

Bank of Japan Governor Kazuo Ueda indicated that the BOJ would raise rates further if economic conditions improve. He stressed the need for caution, highlighting risks such as uncertain US policies and sluggish domestic wage growth. Ueda expressed optimism about achieving the 2% inflation target by 2025 but emphasized the importance of vigilance against potential risks.

Moreover, the 10-year Japanese government bond yield has risen to its highest level in over 13 years, signaling market anticipation of a near-term hike.

Concerns about potential interventions by Japanese authorities to stabilize the Yen persist. Additionally, rising inflation in Japan’s service sector further complicates the BOJ’s policy decisions. While the JPY’s safe-haven appeal occasionally provides support, it is increasingly under pressure from global monetary trends and domestic economic uncertainty.

These uncertainties have kept the USD/JPY in a range-bound market over the past few days. However, the pair has broken above the $158 level and appears poised for further upside movement.

AUD/USD Technical Analysis – Descending Channel

The 4-hour chart for AUD/USD shows that the pair is trading within a descending channel and has reached strong resistance at $0.63. After hitting this resistance, the pair corrected lower toward $0.6250 and consolidated. A break above $0.6330 will likely break the descending channel and push the pair higher. The RSI has entered the overbought region as the pair touched the $0.63 resistance. Given that AUD/USD is rebounding from the long-term support at $0.6180, the likelihood of an upside breakout is higher.

NZD/USD Technical Analysis – Descending Channel

The 4-hour chart for NZD/USD shows that the pair is trading within a descending channel and has rebounded from the long-term support zone at $0.55. The strong rebound from this support has pushed the pair to the first resistance at $0.5665. A breakout above this resistance could drive the pair to higher levels. A break above $0.57 is necessary to confirm the breakout from the descending channel.

USD/JPY Technical Analysis – Breakout

The 4-hour chart for USD/JPY shows that the pair is breaking out of an 11-day consolidation range. The upper boundary of this consolidation was at $158, where the price attempted to break out four times. On the fifth attempt, the pair successfully broke to the upside. The formation of an inverted head-and-shoulders pattern in December supports the bullish potential for USD/JPY. A break above $158 has paved the way toward $161. However, if the price fails to hold and drops below $155.80, it will invalidate the bullish outlook and could lead to a decline toward $154.50.