AUD/USD, NZD/USD, USD/JPY: Stronger US Inflation Lifts Dollar, Pressures AUD and JPY

US Inflation Surges, Fed Stays Hawkish, AUD/USD Under Pressure

The United States released the US Consumer Price Index (CPI) data, which showed stronger-than-expected inflation. This data supports the Federal Reserve’s hawkish stance. According to the report, the headline CPI rose 0.5% month-over-month, while the core CPI increased by 0.4%. This increase in CPI brought the core inflation rate to 3.3%, as shown in the chart below. Higher inflation readings suggest a prolonged period of elevated interest rates, which has boosted the US Dollar.

Moreover, Fed Chair Jerome Powell, in his testimony, reaffirmed the central bank’s independence and commitment to its 2% inflation target. His cautious tone suggested that rate cuts are unlikely in the near term, further supporting the Greenback. This strength in the US Dollar has pushed the Australian Dollar lower from the resistance area.

On the other hand, Australian economic data paints a different picture. Q4 CPI softened, with headline inflation dropping to 2.4% YoY, as shown in the chart below. Moreover, the trimmed mean CPI fell to a three-year low of 3.2%. This has fueled expectations of a February rate cut by RBA. Additionally, ongoing trade tensions continue to weigh on the Australian Dollar. Even though commodity prices have stabilized, the US Dollar’s strength and risk-averse sentiment limit the AUD/USD upside potential.

Moreover, Australian housing market data shows a slowdown, as shown in the chart below. Private dwelling approvals indicate a sharp decline, but the data remains within the upward trend since the early 2000s. The drop in building approvals signals weaker construction activity and subdued housing demand.

However, China’s OECD composite leading indicator rose to 100.08 in January, staying above the key 99 threshold since early 2023. This suggests a potential economic rebound, which could support Australian exports. Nonetheless, broader concerns about China’s economic health continue to pressure the Aussie Dollar.

JPY Gains on Strong PPI, But USD/JPY Stays Firm Above 154.00

The Japanese Yen gained some support after Japan’s Producer Price Index data, which rose 0.3% monthly and 4.2% yearly, signalling inflationary pressures. This reinforced expectations of further rate hikes by the Bank of Japan. BoJ officials, including Governor Kazuo Ueda, hinted at the possibility of another hike if economic conditions align with their projections. However, the market reaction was short-lived as broader concerns, including potential US tariffs on commodity imports, weighed on sentiment. These fears limited the JPY’s upside, preventing a stronger rally against the US Dollar.

Meanwhile, the USD/JPY pair remained resilient above the 154.00 mark, supported by higher US Treasury yields. Fed Chair Jerome Powell’s recent remarks suggested no urgency to cut rates, while hotter US inflation data lowered expectations of monetary easing. This widened the US-Japan yield gap, limiting demand for the lower-yielding JPY. However, the US Dollar struggled to attract strong buying interest. The prospect of higher US inflation after the release of the US CPI increased expectations of a stronger US Dollar, pushing USD/JPY higher.

AUD/USD Analysis – Symmetrical Broadening Wedge

The AUD/USD pair remains within the symmetrical broadening wedge pattern and shows strong volatility. The pair has formed an inverted head and shoulders pattern, and a break above the neckline at $0.6305 may push AUD/USD to the $0.6350 level. Moreover, a break above $0.6350 may initiate a strong rally to the upside.

NZD/USD Analysis – Bullish Consolidation

The NZD/USD pair shows similar price behavior to the AUD/USD. The pair is consolidating within the symmetrical broadening wedge pattern and remains above the long-term support zone. A break above the red trendline at $0.5680 may push the pair to $0.5760, and a break above $0.5760 may initiate a strong move higher.

USD/JPY Analysis – Symmetrical Broadening Wedge

The USD/JPY shows a strong bullish trend as the price has rebounded higher from the final support at $151. The pair has also broken the red trendline at $154, opening the door to the $155.80 and $156.30 areas. However, the RSI indicates an overbought zone, suggesting a possible correction before the resumption of the upward rally in USD/JPY.