The Australian dollar held firm today, September 3rd, as investors adjusted their RBA and Federal Reserve expectations for the year. The AUD/USD pair was trading at 0.7165, a few points below the August high of 0.7207. 

RBA rate hike expectations rise

Traders are bracing for interest rate hikes from the Federal Reserve and the Reserve Bank of Australia (RBA) happening as soon as this month.

Polymarket gives the odds of RBA’s rate hike happening in September rose to 67%. These odds jumped after the US and Iran resumed their kinetic activity, which led to higher oil prices. 

Australia has also published strong macro numbers this week. An S&P Global report showed that the services PMI came in at 53.2 in August, higher than the expected 52.9. A PMI reading of 50 and above is usually a sign that a sector is growing. The composite PMI came in at 52.7, also higher than the expected 52.50.

Another report released on Wednesday showed that the Australian economy expanded by 2.1% in the second quarter, higher than the expected 1.8%. It grew by 0.4% in Q2 after growing by 0.3% in Q1 on a QoQ basis. 

This growth happened even as the Reserve Bank of Australia (RBA) became the most hawkish central banks this year. It has already delivered three rate hikes this year, with officials leaving the door open for more hikes.

A key concern is that Australia’s inflation has remained at an elevated level in the past few months. This trend will likely continue now that the US and Iran have restarted their kinetic activity, leading to higher energy prices. Brent, the global benchmark, rose to $95.68, while the West Texas Intermediate (WTI) rose to $91.

Odds of Fed rate hikes rising

The same situation is happening in the US, where odds that the Fed will hike rates this month have jumped to 55% on Polymarket. These odds soared after Kevin Warsh delivered a highly hawkish statement at the Jackson Hole Symposium.

In it, he hinted that the bank was concerned about the state of inflation, which has remained above the 2% target in the past five years.

Focus now shifts to the upcoming US nonfarm payrolls (NFP) report that will provide color on the labor market. Economists expect the data to show that the economy created over 80k jobs in August this year.

AUD/USD technical analysis

AUDUSD chart | Source: TradingView

The daily chart shows that the AUD/USD pair may be on the verge of a bearish reversal in the coming days. For one, it has formed a rising wedge pattern whose two lines are about to converge. 

Also, the two lines of the Percentage Price Oscillator (PPO) have made a bearish crossover, while the Relative Strength Index is pointing downwards.

Therefore, the most likely scenario is where the AUD/USD pair falls, potentially to the key support of 0.700.

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The USD/JPY exchange rate dived to its lowest level in a month as the Japanese yen made a strong comeback. It dropped to 156.85, down over 4.40% from its year-high as investors predicted that the Bank of Japan (BoJ) will hike interest rates as soon as this month.

Polymarket odds of BoJ rate hikes are rising

Markets are expecting the Bank of Japan to hike interest rates in its September 18 meeting. A Polymarket event contract has a 97.5% probability of this hike happening.

These odds have jumped after recent statements by senior BoJ officials, including Governor Kazuo Ueda and Deputy Governor Ryozo Himino. They have hinted that the bank will be comfortable implementing another rate hike as inflation has held steady this year.

The most recent data showed that the Tokyo CPI jumped 1.9% in August from 1.8% in the previous month. It has been in a steady increase since bottoming at 1.3% in May this year.

This trend will continue in the foreseeable future since the US and Japan have restarted their war. Iran carried out strikes against key US allies like Kuwait and Bahrain, leading to higher crude oil prices. Brent has jumped to over $95, while the West Texas Intermediate (WTI) has moved to $91. 

Japan is highly exposed to the events in the oil market because it imports from the Middle East, including countries like Saudi Arabia, UAE, Kuwait, and Qatar. Rising oil prices mean that inflation will continue rising in the coming months.

The rising BoJ hike odds comes at a time when Japan’s bond yields have soared to the highest level in years. The ten-year yield rose to 3.03%, much higher than the year-to-date low of 2.045%.

Similarly, the 30-Year rose to 4.20% before falling to 4.068% today as the odds of BoJ rate hike rose.

The challenge for the Japanese yen, however, is that the Federal Reserve is also expected to hike interest rates in the coming meetings. Odds of the Fed hiking rates in September jumped to 60% on Polymarket.

A Fed and BoJ hike would leave the differential where it is today, making the Japanese yen a popular carry trade funding currency. A carry trade is a situation where investors borrow from a low-interest-rate currency and then invest it in a high-interest-rate one. 

The next important catalyst for the USD/JPY pair is the upcoming US nonfarm payrolls data. Economists expect the economy to have added between 50k and 80k jobs in August after shedding 23k a month earlier.

USD/JPY technical analysis 

USDJPY chart | Source: TradingView 

The daily chart shows that the USD/JPY crashed to a low of 156, its lowest level since August 7. This retreat happened after the pair formed a rising wedge pattern, which is made up of two ascending and converging trendlines. This pattern is one of the most common bearish reversal sign in technical analysis.

The wedge was part of bearish pennant pattern, which happens after an asset makes a big dive. It has now remained below the 50-day and 100-day Exponential Moving Averages (EMA).

Therefore, the pair will likely continue falling, potentially to the key support level at 155.25. A move below that support will point to more downside.

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The NZD/USD exchange rate continued its strong downward trend, reaching its lowest level since August 13 this year after the Reserve Bank of New Zealand (RBNZ) delivered its interest rate decision. It slumped to 0.5835, down by over 2.6% from its highest point in August.

RBNZ interest rate hike

New Zealand’s RBNZ decided to hike interest rates for the second consecutive meeting as it fights to lower inflation, which has remained above the 2% level in the past few years. 

It brought the benchmark interest rate to 2.75%, narrowing the gap with the benchmark US interest rate, which stands between 3.50% and 3.75%. 

In a statement, the RBNZ maintained that inflation is a major issue in the country, with the headline Consumer Price Index (CPI) rising to 4.1% in the June qyuarter, driven by elevated crude oil prices.

While core inflation remains high, officials expect that it will come down to the target range sometime in 2027. The statement added:

“Resilient demand from New Zealand’s trading partners and strong export prices are supporting income growth and investment in export-exposed sectors and regional New Zealand.”

Still, the bank warned that the economy is seeing weak income growth, job insecurity, and flat house prices, which are having an impact on household spending and residential investment in Auckland and Wellington.

A key challenge is that inflation may remain at an elevated level in the coming weeks now that the US and Iran have resumed their kinetic activity. Brent and the West Texas Intermediate (WTI) have continued rising and now sits at $95 and $90, respectively. 

The crisis will likely escalate in the coming days, which will push crude oil and transportation prices substantially in the coming weeks.

This is one key reasons why New Zealand’s and US bond yields have continued rising. The ten-year yield jumped to 4.86%, its highest level since March 23rd this year. It has risen substantially from the June low of 4.358%. 

The same is happening in the United States, where the ten-year and 30-year rose to 4.8% and 5.28%, respectively. These yields have jumped as investors expect that the Fed will hike interest rates as soon as this month. 

NZD/USD technical analysis

NZDUSD chart | Source: TradingView

The daily chart shows that the NZD/USD pair peaked at 0.5990 in August. This was an important level since it was its highest point in May and June this year. 

The pair has now slumped and moved below the ascending trendline that connects the lowest swings since June, July, and August this year. Moving below that level confirmed the bearish breakout. 

The pair has moved below the Major S/R pivot point of 0.5860, and the 50-day moving average. Therefore, the pair will likely remain under pressure in the coming days, potentially to the strong, pivot, reverse level of the Murrey Math Lines too.

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The USD/JPY exchange rate wavered today, August 27, as traders waited for the upcoming Kevin Warsh statement at the Jackson Hole Symposium in Wyoming. It also wavered after the US published the latest PCE and GDP numbers. It was trading at 159.32, up by 2.68% from its lowest level this month.

Kevin Warsh statement at the Jackson Hole Symposium

The USD/JPY pair wavered after the US released the latest inflation and GDP numbers. A report showed that the personal consumption expenditure (PCE) rose 3.7% in the 12 months through July, unchanged from June. This figure was much higher than the average estimate of economics of 3.6%. The month-over-month figure of 0.2% was also higher than expected.

These numbers mean that inflation continues to remain above the 2% target, a situation that may continue as gasoline and diesel prices rises. The average gasoline price in the US is stuck above $4 a gallon, while diesel is slowly nearing the all-time high. This is happening even as Brent and West Texas Intermediate (WTI) benchmarks falls.

The next important USD news will come from the US, where Kevin Warsh, the Fed Chair, will talk at the Jackson Hole Symposium. His statement will be watched closely as traders look for clarity. In all his past statements, he has maintained a vague outlook on inflation and interest rates. Unlike Janet Yellen and Jerome Powell, he has avoided provided forward guidance. 

As a result, the market is unsure of what to expect this year. According to Polymarket, the odds of a December rate hike stands at about 53%. In a statement, Robert Gill, a portfolio manager at Fairbank Investment said:

“This lack of direction can be frustrating. It is causing uncertainty and contributing to higher long-term bond yields, and this is an outcome that he seems to be designing.”

Top BoJ official hints at September hike

Meanwhile, the USD/JPY pair is reacting to a statement by Ryozo Himino, the BoJ Deputy Governor. In a statement, he said that the bank may consider hiking interest rates in the coming meeting next month. He said that this hike will be possible if inflation remains stubbornly high. He said:

“If underlying inflation deviates upward to a level above the price stability target of 2%, that would have an adverse impact on the economy.”

A BoJ rate hike would be bullish for the Japanese yen, which remains near its lowest level in decades. It would help to narrow the gap between the US and Japanese interest rates, reducing its appeal as a carry trade funding currency. 

The next key catalyst for the USD/JPY pair will come from Japan, which will publish the latest Tokyo Consumer Price Index (CPI) report on Thursday. Economists expect the data to show that the Tokyo CPI rose 18% in August.

USD/JPY technical analysis

USDJPY chart | Source: TradingView

The four-hour chart shows that the USD/JPY pair has held steady in the past few days. Along the way, it has moved slightly above the 50-period Exponential Moving Average (EMA). 

At the same time, the pair has formed an ascending triangle pattern, a common bullish continuation sign. Also, the two lines of the MACD indicator have moved above the zero line. 

Therefore, the pair will likely have a bullish breakout as bulls target the year-to-date high of 163.97. This view will be confirmed if it moves above the crucial resistance level of 159.72.

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The Japanese yen continued its recent retreat, reaching its lowest level since July 31 as the recent US intervention backfired. The USD/JPY pair rose to 159.43, up by 2.72% from its lowest level this month. 

Japanese yen retreat continues as carry trade intensifies

The USD/JPY pair crashed hard earlier this month, reaching its lowest level since May, after the Donald Trump administration made its biggest intervention in years. It did that by converting some of its euro holdings into the Japanese yen, a move that caught European officials offguard.

The Bank of Japan (BoJ) also intervened, pumping billions of dollars to yen buying. This happened after the pair jumped to 163.96, its highest level in decades. 

The Trymp administration intervened to prevent the BoJ from intensifying its US government bond sales, which would have driven yields higher. Already, the 30-year yield has remained above 5% for months.  And this week, the US government sold ten-year bonds at the highest yield in years. 

Historically, forex market interventions tend to have a short-term impact on the currency. A good example of this is how the Japanese yen jumped on April 30th after the BoJ intervened and then resumed its downward trend.

The main issue facing the Japanese yen is that the Bank of Japan maintains low interest rates compared to the Federal Reserve. It recently hiked rates to 1%, the highest level in decades. This rate, however, is much lower than the US, which has remained between 3.50% and 3.75% this year.

The implication of this is that the USD/JPY has become a carry top carry trade pair. A carry trade is a situation where investors borrow from a low interest country and invests in a high interest rate one. In this case, they are borrowing from Japan and investing in the US.

As such, analysts believe that the Japanese yen will only have a sustained uptrend against the US when the BoJ hikes interest rates further. The BoJ has hinted that it may hike rates further this year. A Polymarket poll shows that odds of a 25 basis point hike in September have jumped to 68%.

Separately, the USD/JPY pair reacted mildly to the latest US nonfarm payrollsand consumer inflation data. The jobs report showed that the US economy lost 23k jobs in July, while the unemployment rate dropped to 4.2%. Another report released on Wednesday showed that the US inflation softened a bit in July. These numbers mean that the Fed will maintain rates unchanged this year.

What next for the USD/JPY pair?

USDJPY chart | Source: TradingView

The daily chart shows that the USD to JPY pair has rebounded in the past two weeks as the impact of the intervention fades. It has now jumped to 159.46, and is attempting to cross the 25-day Exponential Moving Average (EMA). 

The Average Directional Index (ADX) has continued rising and moved to 37, the highest level in months, a sign that the uptrend is continuing. Therefore, the path of the least resistance for the pair is bullish, with the next key target to watch being 160. A move above that level will point to more upside.

The only caveat to remember is that the BoJ and the US have hinted at possible interventions, meaning that these gains can easily reverse.

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The Japanese yen softened against the US dollar, even after the Bank of Japan (BoJ) flagged rising risks of faster interest rate hikes in the last meeting. The USD/JPY pair rose to 158.23, up by nearly 2% from its lowest level this month. 

BoJ signals potential faster interest rate hikes

There are signs that the BoJ is considering faster interest rate hikes to fill the gap with the Federal Reserve’s benchmark rate.

Minutes of the last meetings showed that officials were comfortable with higher rates for longer as inflation remained at an elevated level. The minutes said:

“Given that underlying CPI inflation has been approaching 2 percent and greater consideration should be given to upside risks to prices than before, it could be considered that the pace of policy interest rate hikes will be faster than market expectations.”

The BoJ left interest rates unchanged at 1% in the last meeting, its highest level since September 1995. It made the last 25 basis point hike in June, and now Polymarket traders believe that it will hike again later this year.

The most recent data showed that the headline consumer price index (CPI) jumped to 1.7% in June, the highest reading since December last year. This surge was driven by electricity and gas prices as government subsidies were scaled back.

Energy prices have jumped in Japan this year because of the ongoing US-Iran war that pushed Brent and West Texas Intermediate (WTI) prices to nearly $120 at the peak. Crude oil pricesdrifted higher on Monday as Iran announced tougher rules for reopening the Strait of Hormuz. It is seeking reparations, release of frozen assets, and the lifting of the naval blockade.

US and Japan interventions

The USD/JPY pair has risen recently as investors bought the dip after the recent interventions by the US and Japan. The BoJ has spent over $50 billion this month, while the US has swapped euros worth billions of dollars to Japanese yen. 

This happened as the US is concerned that Japan will be forced to dump some of its US treasuries to boost the yen, a notable thing since Japan holds over $1.1 trillion in bonds, and the 30-year yields have remained above 5% for over a month.

It is common for a forex pair to bounce back after experiencing such a big drop that the USD/JPY had earlier this month.

The pair will next react to the upcoming US consumer price index (CPI) report that comes out on Wednesday. Economists expect the data to show that inflation slowed modestly in July as gas prices fell a bit.

This report comes a few days after the US released the weak nonfarm payrolls(NFP) data, which showed that the economy lost 23k jobs last month.

USD/JPY technical analysis

USDJPY chart | Source: TradingView

The daily chart shows that the USD to JPY pair plunged from a high of 163.96 to a low of 155.20. It has now plunged below the 50-day Exponential Moving Average (EMA), a sign that bears are in control for now.

At the same time, the two lines of the Percentage Price Oscillator (PPO) have moved below the zero line and moved to the lowest level in months. The pair is also forming a bearish flag pattern, a common bearish continuation sign.

Therefore, the pair’s outlook is mixed for now. One aspect is where it resumes the downtrend as sellers attempts to retest this month’s low of 155.20. On the flip side, it may bounce back to the psychological level of 160.

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