AUD/USD and NZD/USD Eye Upside as Fed Signals Diverge, USD/JPY in Tight Range

Trade Hopes, RBA Policy, and China Data Shape Aussie Direction

The Australian Dollar (AUD) trimmed earlier losses as hopes for a US–China trade deal supported sentiment. Traders are watching closely as China may finalise a long-term tariff agreement with the US before the August deadline. US Commerce Secretary Howard Lutnick stated that major trade deals could be secured in the coming weeks. This improved risk appetite and helped AUD/USD recover from session lows.

The AUD/USD pair faced pressure earlier after China kept its Loan Prime Rates unchanged. The People’s Bank of China held the one-year LPR at 3.00% and the five-year at 3.50%.

These rates influence corporate and household lending. Since Australia is closely tied to China’s economy, the lack of further stimulus from Beijing dampened AUD sentiment. However, a stronger-than-expected Chinese GDP growth of 5.2% in Q2, above the 5.1% forecast, offered some relief to the Aussie.

Moreover, the economists expect the RBA to begin easing later this year. The cash rate may fall to 3.1% by early 2026. This dovish outlook limited the upside for AUD/USD, despite the improving trade tone. Investors are also factoring in a balanced labour market and moderate economic growth in Australia.

On the other hand, the drop in the US Dollar Index helped AUD/USD and NZD/USD. Weaker-than-expected US PPI data and dovish comments from some Fed officials weighed on the dollar.

Moreover, the US Retail Sales surprised to the upside with a 0.6% MoM rise in June, against -0.9% previously, as shown in the chart below. These mixed signals added uncertainty to the Fed’s policy outlook.

Fed officials offered divergent views on rate cuts. Governor Waller favoured a rate cut in July, citing rising economic risks. In contrast, Governor Kugler warned against early easing, saying tariffs are fueling inflation. Mary Daly struck a middle ground, calling two cuts in 2025 “reasonable” but warning against delays. These comments left markets guessing, which kept volatility elevated in dollar pairs of AUD/USD, NZD/USD and USD/JPY.

Weak Inflation Data and Fed Policy Divergence Limit Kiwi Gains

The New Zealand Dollar (NZD) saw limited gains after inflation data missed expectations. The chart below shows that New Zealand’s annual inflation rose to 2.7% in Q2 2025, from 2.5% previously.

Moreover, the quarter-on-quarter CPI rose 0.5%, slowing from 0.9% in Q1 and missing the forecast of 0.6%.

These numbers reduce pressure on the Reserve Bank of New Zealand (RBNZ) to raise rates, which has capped the upside of NZD/USD. The pair struggled to break above key resistance levels.

In summary, AUD/USD and NZD/USD traded with caution amid mixed global cues. Trade optimism and a weaker dollar provided support. However, China’s inaction on stimulus, combined with soft inflation data from New Zealand, limited momentum.

AUD/USD Technical Analysis – Ascending Broadening Wedge Pattern

The 4-hour chart for AUD/USD shows that the pair is trading within an ascending broadening wedge pattern. The formation of an inverted head and shoulders pattern above the 0.64 level indicates bullish price action and suggests a potential move toward 0.6650. Bearish pressure on the US Dollar Index further supports the Australian Dollar’s strength, helping the pair remain stable above the 0.64 region.

NZD/USD Technical Analysis – Bullish Price Development

The 4-hour chart for NZD/USD shows that the pair is trading within a descending channel and consolidating above the 0.5850 level. A breakout above the channel would likely initiate a move toward 0.61. The consolidation above 0.5850 indicates bullish price action and suggests potential upside momentum.

USD/JPY Technical Analysis – Neutral Zone

The 4-hour chart for USD/JPY shows consolidation between the 142 and 151 levels. A break of either level will likely trigger the next directional move. If the US Dollar Index fails to break above the 50-day SMA near the 99 level and continues to decline, USD/JPY may fall toward the 142 area.