AUD/USD, NZD/USD Rally While USD/JPY Declines Amid Shifting US Dollar Dynamics

Australian Dollar Strengthens Amid US Dollar Weakness and RBA Speculation

The Australian Dollar (AUD) shows strength as the US Dollar begins to correct lower from strong resistance following Trump’s inauguration. The rally in AUD/USD is supported by expectations that US President Donald Trump will not immediately announce new tariffs after his inauguration. The absence of new tariffs has relieved the AUD, allowing it to remain steady amid mixed market sentiment.

The Reserve Bank of Australia (RBA) faces growing speculation of an imminent interest rate cut, possibly as early as next month. This expectation arises from softer core inflation data, which has dropped to its lowest since Q4 2021, nearing the RBA’s target range of 2% to 3%. The market is closely watching Australia’s upcoming quarterly inflation report, scheduled for next week. This report could provide crucial insights into the central bank’s policy direction.

Meanwhile, the People’s Bank of China (PBOC) left its Loan Prime Rates (LPRs) unchanged on Monday. The one-year LPR is 3.10%, and the five-year LPR is 3.60%. The chart below highlights a notable declining trend in China’s interest rates. As China is Australia’s largest trading partner, stability in China’s monetary policy could indirectly support the Australian Dollar.

Shifting USD Dynamics and BoJ Speculation

The US Dollar’s recent movements add complexity to the AUD/USD outlook. While the US Dollar Index (DXY) has dropped to 108, uncertainties persist due to Trump’s trade review policies. The Federal Reserve is expected to maintain its benchmark overnight rate. However, potential inflationary pressures from Trump’s economic policies could limit the likelihood of further rate cuts.

Meanwhile, US Retail Sales and Consumer Price Index (CPI) data provide mixed signals about the economy’s momentum. The chart below shows the weaker-than-expected retail sales growth and stable CPI figures for December 2024. These data indicate moderate economic activity, as the Federal Reserve’s Beige Book survey highlighted. The strong volatility in the US Dollar Index has created uncertainty in USD/JPY, reflecting investors’ cautious sentiment.

Moreover, fears of a global trade war have resurfaced following Trump’s tariff remarks, impacting market sentiment. The rising expectations of a BoJ rate hike later this week have supported the safe-haven Japanese Yen.

AUD/USD Analysis – Bullish Formation

The 4-hour chart for AUD/USD indicates that the pair has bottomed out at the long-term support range of $0.6040 to $0.6170. It has initiated a rebound from this support range, forming a symmetrical broadening wedge pattern. The rebound appears bullish as the pattern forms an inverted head and shoulders. The immediate resistance is around $0.6320; a break above this level could trigger a strong rally in AUD/USD.

NZD/USD Analysis – Inverted Head and Shoulders Pattern

The 4-hour chart for NZD/USD shows that the pair has rebounded from the strong support region of $0.55 to $0.56, forming bullish price action. The immediate resistance for this rebound is at $0.5720, and a break above this level will confirm the inverted head and shoulders pattern, initiating a strong rally. Additionally, the descending channel has been broken. The pair has begun an upward trend as the US Dollar starts to correct.

USD/JPY Analysis – Symmetrical Broadening Wedge Pattern