AUD/USD, NZD/USD, and USD/JPY Analysis: RBA Dovishness and US Risks Drive Momentum

AUD/USD Holds Ground Despite RBA Dovishness and China Risks

The Australian Dollar holds near the psychological 0.6500 level after retreating from a six-month high of 0.6537. Although the pair remains under pressure, the broader weakness in the US Dollar has strengthened the AUD/USD. The US Dollar Index trades near 98.80, marking its third straight day of losses. This decline is driven by fiscal concerns in the US, giving short-term support to the Aussie.

Despite this, AUD faces challenges from the dovish RBA outlook. The central bank recently cut interest rates by 25 basis points, and Governor Michele Bullock hinted at more cuts if the economic outlook worsens. This weakens rate differentials in favor of the USD, capping AUD upside. Markets expect the RBA to remain cautious, which may prevent AUD/USD from sustaining a strong rally.

The recent 90-day truce in US-China trade talks has supported the AUD, as China is Australia’s largest trading partner. However, tensions remain. China’s Commerce Ministry condemned US chip sanctions as “unilateral bullying.” Australia-China ties are also strained, with Beijing criticizing Australia’s plan to revoke the Darwin Port lease to a Chinese firm. These geopolitical frictions could dampen AUD’s performance if tensions escalate.

Moreover, Trump’s tariff extension on the EU to July 9 has improved market sentiment. Risk appetite returned after the 50% tariff threat was delayed. This delay boosts AUD, but the upside remains fragile and dependent on Fed signals and Australia-China diplomacy.

USD/JPY Faces Downside as US Dollar Weakens on Debt and Policy Risks

USD/JPY continues its downward trend, pressured by US fiscal instability and mixed Fed signals. The pair trades below key levels as investors react to rising bond yields and concerns over future US borrowing. According to the CBO, Trump’s “One Big Beautiful Bill” could raise the deficit by $3.8 billion. This adds to an already dire projection of a $2.2 trillion annual deficit, cited by Senator Ron Johnson.

The US credit downgrade by Moody’s from Aaa to Aa1 has weakened the USD further. Moody’s expects US debt to hit 134% of GDP by 2035, up from 98% in 2023. The projected 9% budget deficit is also alarming. These figures highlight structural weaknesses in US fiscal policy. As a result, USD/JPY faces continued pressure, especially as markets price in potential Fed rate cuts later this year.

Fed speakers have added to the uncertainty. Neel Kashkari warned that extended tariffs could lead to stagflation, while Goolsbee suggested Trump’s tariff threats may delay policy shifts. Fed Governor Waller said the economy could handle 10% tariffs, but also acknowledged fiscal policy concerns. The mixed tone from the Fed weakens market confidence and adds volatility to USD/JPY.

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 boundaries of this pattern lie between the $0.6390 and $0.6570 levels. Despite the ongoing consolidation, the formation of the ascending broadening wedge suggests strong volatility ahead. The upward trend will likely continue since the price has rebounded from the long-term support at $0.5900.

NZD/USD Technical Analysis – Bullish Momentum

The 4-hour chart for NZD/USD shows that the price is forming strong bullish price action after rebounding from the long-term support at the $0.5500 level. The pivotal level remains $0.6020; a break above this level would signal further upside. Continued bullish momentum in NZD/USD could also support upside in AUD/USD.

USD/JPY Technical Analysis – Descending Broadening Wedge

The 4-hour chart for USD/JPY shows that the pair is trading within a descending broadening wedge pattern. The attempt to break above the pattern failed at 148.30. After this failure, the pair resumed its downward trend and moved lower. The 140 area remains a long-term pivotal level, and a break below 140 would signal strong bearish pressure.