Japanese Yen and Aussie Dollar Forecasts: BoJ, Aussie Inflation and US Stagflation in Focus

Bank of Japan Rate Hike Gives Yen the Edge

The USD/JPY will be under the spotlight on Monday, August 4, as investors raise bets on a Q4 Bank of Japan rate hike. In July, Tokyo’s so-called core core inflation rate eased from 3.1% to 2.9%, holding well above the BoJ’s 2% target. Additionally, uncertainty over US demand for Japanese goods eased after Japan agreed to a reduced 15% US tariff, potentially boosting trade terms.

Rising food prices and the US-Japan trade deal may pave the way to an October BoJ rate hike. A rate hike could be significant given July’s US Jobs Report, which fueled speculation about a September Fed rate cut. Monetary policy divergence would narrow the US-Japan interest rate differential in favor of the Japanese Yen and weigh on USD/JPY.

However, the BoJ may need to consider several key economic indicators before signaling a rate hike. This week’s average hourly earnings and household spending data will give the Bank insights into wage growth trends and whether higher wages are translating into consumption.

Given that private consumption contributes over 50% to Japan’s GDP, a pickup in household spending would boost the economy, which is key for the BoJ to make a move. Crucially, consumer spending may also fuel demand-driven inflation, the second key ingredient needed for a rate hike.

The BoJ kept interest rates at 0.5% on July 31 but left a potential rate hike on the table. According to July’s Reuters Poll, 54% of economists expect the BoJ to raise interest rates in the fourth quarter. Rising wages and inflation are key, but trade terms will also influence sentiment toward the BoJ’s rate path.

USD/JPY Daily Outlook: US Factory and the Fed in Focus

Later in the session on Monday, US factory orders will draw interest amid growing stagflation fears. Economists forecast factory orders to fall 5.2% month-on-month in June after surging 8.2% in May.

A larger-than-expected fall in orders could fuel stagflation jitters and raise bets on a September Fed rate cut. A more dovish Fed policy stance may push USD/JPY toward the 50-day Exponential Moving Average (EMA). A drop below the 50-day EMA could expose the crucial 145 support level.

Conversely, an unexpected rise in orders may temper expectations of a Fed rate cut, lifting the pair toward the 200-day EMA. A break above the 200-day EMA may pave the way to the 149.358 resistance level.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: hawkish BoJ rhetoric, weaker US factory orders, dovish Fed signals. Such factors could send USD/JPY toward the 50-day EMA, potentially exposing the 145 level.
• Bullish USD/JPY Scenario: Dovish BoJ signals, strong US factory orders, hawkish Fed rhetoric. These may drive the pair toward the 200-day EMA and potentially the 149.358 resistance level.

See today’s full USD/JPY forecast with chart setups and trade ideas.

AUD/USD: Aussie Inflation to Spotlight the RBA

Turning to the AUD/USD pair, inflation indicators will influence the RBA rate path. Economists forecast the TD-MI Inflation gauge to rise 0.2% month-on-month in July after June’s 0.1% increase.

Given that economists consider the inflation gauge as a leading inflation indicator, rising trends would signal higher inflation. A pickup in inflationary pressures may ease expectations of multiple RBA rate cuts, lifting demand for the Aussie dollar. Conversely, a softer print may fuel speculation about further rate cuts after August’s widely expected rate cut. A more dovish RBA stance could weigh on the Aussie dollar.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Softer-than-expected Aussie inflation data or dovish RBA rhetoric. These factors could push AUD/USD toward the 200-day EMA, exposing the 0.64 support level.
• Bullish AUD/USD Scenario: Hotter-than-expected Aussie inflation numbers or hawkish RBA signals. These factors could send AUD/USD toward the 50-day EMA and the crucial $0.65 resistance level.

Click here for a more comprehensive analysis of AUD/USD trends and trade data insights.

AUD/USD Daily Outlook: US Factory Orders and Rate Differentials

Later today, US factory orders will influence sentiment toward the US economy and US-Australian interest rate differentials.

An unexpected rise in orders may ease fears of a US recession and expectations of multiple Fed rate cuts. A less dovish Fed rate path would widen the rate differential in favor of the US dollar, dragging AUD/USD toward the 200-day EMA. A drop below the 200-day EMA would bring the $0.64 level into play.

On the other hand, a larger-than-expected fall in orders may fuel stagflation fears, lifting bets on multiple Fed rate cuts. A narrower rate differential could send AUD/USD toward the 50-day EMA and the $0.65 resistance level. A sustained move above the $0.65 level may enable the bulls to target the July high of $0.6625.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ commentary.
• USD/JPY and AUD/USD: US factory orders and Fed chatter.
• AUD/USD: Aussie inflation data and RBA rhetoric

For more in-depth analysis, review today’s USD/JPY and AUD/USD trading setups in our latest reports and consult our economic calendar.