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Australian Dollar steadies vs Japanese Yen as CPI cools, BoJ hawks

  • AUD/JPY experiences volatility amid cooling Australian inflation.
  • Australia’s annual CPI rose 4.0% while monthly prices fell 0.7%, both slowing much faster than markets expected.
  • JPY defense prompts government intervention and rate hike momentum, highlighting building pressures for a tighter monetary policy.

AUD/JPY remains steady after six days of losses, trading around 0.6920 during the Asian hours on Wednesday. The currency cross moves little as the Australian Dollar (AUD) experiences minor volatility following the release of Australia’s Consumer Price Index (CPI) data.

Australian inflation slowed more than anticipated in May, offering some relief to policymakers. According to the Australian Bureau of Statistics, the annual Consumer Price Index (CPI) rose by 4.0% year-over-year, down from 4.2% in the previous month and lower than the 4.4% market consensus. On a monthly basis, consumer prices actually fell by 0.7%, a sharp reversal from the prior month’s 0.4% increase and a softer reading than the forecasted 0.3% decline. Meanwhile, the Reserve Bank of Australia’s (RBA) preferred core inflation metric, the Trimmed Mean CPI, ticked up 0.4% for the month and rose 3.6% on an annual basis.

Over in Japan, momentum is building for tighter monetary policy just as government officials step up warnings to protect a weakening Japanese Yen (JPY). Japan’s Chief Cabinet Secretary Minoru Kihara stated that authorities will take appropriate action against excessive foreign exchange volatility if necessary. This stance was underscored by a high-level call between Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent, keeping the market on high alert for official Yen-buying operations.

The Bank of Japan’s (BoJ) Summary of Opinions from its June meeting showed that a majority of board members supported raising the policy interest rate, noting that inflation risks are broadening and the underlying CPI is sustainably approaching its 2% target.

As a result of these conflicting forces, the upside for the AUD/JPY cross remains firmly capped. The combination of cooling Australian inflation, which dampens the need for higher RBA rate hikes, and heightened fears of direct currency intervention by Japanese authorities has prompted traders to handle the currency cross with extreme caution.

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Canadian Dollar strengthens despite hawkish Fed expectations

  • USD/CAD softesn to near 1.4205 in Wednesday’s Asian session.
  • Iran’s Pezeshkian said no negotiation on ballistic missiles.
  • Traders raise their bets on a US rate hike this year.

The USD/CAD pair edges lower to around 1.4205 during the Asian trading hours on Wednesday. Nonetheless, the potential downside for the pair might be limited amid rising expectations of a Federal Reserve (Fed) rate hike this year. The US May Personal Consumption Expenditures (PCE) Price Index (PCE) data will take center stage later on Thursday. 

Iran’s President Masoud Pezeshkian said on Tuesday that Tehran’s ballistic missile program will not be included in negotiations with the United States (US), per BBC.

US President Donald Trump rebuffed Iran’s claim that no visit has been scheduled for International Atomic Energy Agency (IAEA) inspectors, insisting Tehran had already agreed to the arrangement. Uncertainty surrounding US-Iran peace deal could support the US Dollar (US) against the Canadian Dollar (CAD).

Markets adjusted expectations for a more hawkish stance from the Fed, lifting the Greenback. Traders are now pricing in nearly a 86.1% chance of a Fed hike in December, up from 61% before last week’s FOMC meeting, according to the CME FedWatch tool.

The Bank of Canada (BoC) Governor Tiff Macklem said on Tuesday that global imbalances of financial flows, led by China’s export surplus and the reliance of the United States on foreign capital, and ‌may be fuelling financial stability risks.”

The Loonie has been on the backfoot for several weeks with well-documented reasoning of widening yield differentials in favor of the USD, slowing growth, trade uncertainty or the uneasy status quo and a mostly asymmetric risk response to the Iran war,” said Amo Sahota, director at Klarity FX in San Francisco.

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Swiss Franc slips to seven-month lows ahead of ZEW Survey Expectations

  • USD/CHF reached a seven-month high of 0.8107 on Wednesday.
  • The US Dollar rises due to robust domestic economic data alongside a complex, mixed geopolitical landscape.
  • The SNB raised its inflation forecast and reaffirmed its readiness to intervene in forex markets to curb Franc strength.

USD/CHF extends its gains for the sixth successive day, reaching a seven-month high of 0.8107 during the Asian hours on Wednesday. The pair rises as the Greenback strengthens on the complex Middle East situation. Traders will likely observe the Swiss ZEW Survey – Expectations for June and the Q2 SNB Quarterly Bulletin due later in the day.

US President Donald Trump stated that Iran had “fully and completely” agreed to open its facilities to nuclear inspections, while Iranian Foreign Minister Abbas Araghchi quickly tempered expectations by clarifying that substantive nuclear negotiations have not actually begun.

Additionally, Iran’s chief negotiator issued a stern warning that the strategic Strait of Hormuz will never return to its pre-war status and will remain firmly under Iranian oversight. Meanwhile, diplomatic efforts showed signs of progress elsewhere as Washington hosted a fresh round of talks between Israel and Lebanon, aimed at securing a ceasefire with Iran-backed Hezbollah.

June’s flash estimate for the US S&P Global Composite Purchasing Managers’ Index (PMI) climbed to 52.2, comfortably beating May’s reading of 51.5 and signaling healthy business expansion. The US manufacturing sector showed remarkable resilience, with output jumping to 55.7 from the previous month’s 55.1, easily outperforming forecasts of 54.8. Simultaneously, the Services PMI printed at 51.3, ticking up from May’s 50.7 and clearing the consensus estimate of 51.0, proving that demand in the broader service economy remains incredibly sticky.

The CME FedWatch tool indicates that the markets adjusted expectations for a more hawkish stance from the Federal Reserve (Fed). Traders are now pricing in a nearly 86.1% chance of a Fed hike in December, up from 61% before last week’s FOMC meeting.

The Swiss National Bank (SNB) kept its policy rate at 0% for the fourth straight meeting in June, maintaining its current stance, which continues to support both price stability and economic growth. However, the central bank raised its inflation forecast and reaffirmed its readiness to intervene in the foreign exchange markets to curb the Franc’s strength.

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Dollar Holds Firm on Rate Hike Expectations

The dollar index hovered around 101.4 on Wednesday, trading at its highest level in more than a year as expectations for Federal Reserve rate hikes this year remained strong, while a technology-led selloff on Wall Street boosted demand for the safe-haven currency. At its latest policy meeting, Fed officials left interest rates unchanged but signaled increasing support for further tightening, while new Fed Chair Kevin Warsh reiterated his commitment to restoring price stability. Markets are now pricing in roughly a 70% probability of a rate increase in September, up sharply from 29.1% a week earlier. Investors are also looking ahead to this week’s PCE inflation report, the Fed’s preferred inflation gauge, for additional clues on the outlook for monetary policy. Meanwhile, progress in US-Iran peace negotiations has increased traffic through the Strait of Hormuz, easing strains in global energy markets and helping to reduce inflationary pressures.

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Trade of The Day – GBP/USD

Facts:

GBPUSD bounced off the resistance area near 1.3260 The pair is trading below 100-period moving average from H1 interval

Recommendation:

Trade: Short position on GBPUSD at market price Target: 1.3190, 1.3170 Stop: 1.3283

Opinion:

GBP/USD has been trading in a downward trend recently. Looking at the H1 interval, we can see that the recent upward correction move was stopped at key resistance. The area near 1.3260 is a result of previous local low, as well as 100.0% Fibonacci Expansion measurement, which means that the A, and B are the same size. According to the Elliot Wawe Theory, it may be the end of the local ABC correction, which supports the downward scenario.

In addition, GBPUSD dropped below 100 – period moving average which further confirms bearish sentiment. We recommend going short GBPUSD at market price with two targets: 1.3190 and 1.3170 We also recommend placing a stop loss at 1.3283.

Source: xStation5

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Australian Dollar falls despite improved S&P Global PMI data

  • AUD/USD loses ground despite improved Australian preliminary S&P Global PMI data.
  • Australia’s preliminary June Manufacturing PMI rose to 51.2, while Services PMI climbed to 49.9, signaling economic stabilization.
  • The US Dollar holds ground amid a hawkish sentiment surrounding the Fed policy outlook.

AUD/USD extends its losses for the sixth consecutive day, trading around 0.6980 during the Asian hours on Tuesday. The pair remains subdued despite the release of improved preliminary Australian S&P Global Purchasing Managers Index (PMI) data. Traders’ attention is shifted toward domestic inflation and jobs data due later this week.

S&P Global showed on Tuesday that the preliminary reading of Australia’s S&P Global Manufacturing PMI rose to 51.2 in June versus 50.7 in the prior. Meanwhile, Services PMI climbed to 49.9 in June from the previous reading of 48.7, while the Composite PMI jumped to 49.8 in June versus 48.7 prior.

The AUD/USD pair falls as the US Dollar (USD) gains on a hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook. The updated economic projections and commentary from Kevin Warsh, presiding over his first meeting as Fed Chair, surprised the market by leaning more hawkish than anticipated. As a result, futures traders have fully priced in a 25-basis-point rate hike for the September meeting, with some pricing in a minor probability of a tightening move as early as next month.

However, the Greenback may struggle amid easing risk aversion attributed to the ongoing peace talks between the US and Iran, which helped ease concerns about inflation. CNBC reported on Tuesday that US Vice President JD Vance noted that negotiations have made “great progress,” despite some underlying friction.

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Swiss Franc holds onto losses below 0.8100 amid firm Fed interest rate hike bets

  • The Swiss Franc clings to losses near 0.8088 against the US Dollar amid hawkish Fed bets.
  • The Fed is highly anticipated to deliver at least one interest rate hike this year.
  • Investors await the US S&P Global PMI and Swiss ZEW Survey – Expectations data.

The Swiss Franc (CHF) holds onto Monday’s losses around 0.8088 against the US Dollar (USD) during the Asian trading session on Tuesday. The Swiss Franc pair faces selling pressure due to continued outperformance by the US Dollar amid firm expectations that the Federal Reserve (Fed) will hike interest rates this year.

At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher at around 101.05, the highest level seen in over a year.

According to the CME FedWatch tool, the odds of the Fed hiking interest rates this year are almost 87%.

Hawkish Fed bets have been intensified as the Federal Open Market Committee (FOMC) Economic Projections report, released last week, showed that nine out of 19 policymakers have projected an interest rate hike this year. It appears a sharp turnaround as none of the officials favored a hike this year in March’s Economic Projections report.

For more cues on the United States (US) interest rate outlook, investors await the US Personal Consumption Expenditure Price Index (PCE) data for May, which will be released on Thursday.

In Tuesday’s session, investors will focus on the preliminary US S&P Global PMI data for June. The Services PMI is expected to arrive higher at 51.0 from 50.7 in May.

On the Swiss Franc front, investors await the ZEW Survey – Expectations data for June, which will be released on Wednesday.

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AUD/JPY Price – Holds losses below 113.00 on intervention fears, bias stays mildly bullish

  • AUD/JPY attracts some sellers near 112.75 in Tuesday’s early European session. 
  • The cross keeps a mildly bullish vibe, but further consolidation cannot be ruled out with RSI holding below the midline. 
  • The first upside barrier emerges at 113.40; the initial support level to watch is 112.70.  

The AUD/JPY cross trades in negative territory around 112.75 during the early European trading hours on Tuesday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) as traders are on high alert for currency intervention from Japanese authorities. Japan’s Chief Cabinet Secretary Minoru Kihara said on Tuesday that he will take appropriate action against the foreign exchange moves if needed. 

On the other hand, a hawkish interest rate hold from the Reserve Bank of Australia (RBA) might underpin the Aussie. The Australian central bank decided to leave the Official Cash Rate (OCR) unchanged at 4.35% after its June monetary policy meeting last week. Despite pausing the interest rates, the board members signaled that further rate hikes might be necessary to achieve its goals.

Chart Analysis AUD/JPY

Technical Analysis:

In the daily chart, AUD/JPY retains a mildly constructive bias while it holds above the 100-day Simple Moving Average (SMA) and the lower Bollinger Band, suggesting underlying demand remains in place despite the recent pullback from the highs. The Relative Strength Index (RSI) at 43.6 leans slightly bearish but not oversold, hinting more at consolidation than a decisive reversal as price oscillates within the upper half of its broader Bollinger envelope.

On the topside, initial resistance is aligned with the Bollinger middle band at 113.40, and a sustained break above this area would open the door for a retest of the upper Bollinger Band around 114.78. On the downside, the immediate focus is on the 100-day SMA at 112.20 ahead of the lower Bollinger Band at 112.00, where buyers would be expected to show more interest if the pullback deepens.