Japanese Yen and Aussie Dollar Forecasts: Bullish or Bearish? Key Data and Fed Cues in Focus

Capital Spending and Manufacturing PMI to Spotlight the Yen

Manufacturing PMI and capital spending will face scrutiny amid shifting sentiment toward the Bank of Japan’s policy stance, influencing the USD/JPY pair.

Capital spending rose 7.6% year-on-year in the second quarter, accelerating from 6.4% in Q1.

Stronger capital spending would indicate a pickup in business investments, potentially bolstering the labor market. An upswing in job creation may boost wage growth and demand-driven inflation, raising BoJ rate hike bets.

The USD/JPY moved from 147.040 to 146.950 after the data release.

Later this morning, finalized manufacturing sector PMI data will provide further insights into the effect of tariffs on external demand. According to flash data, the S&P Global Manufacturing PMI rose from 48.9 in July to 49.9 in August.

Overseas demand for Japanese goods fell sharply in August (mid-Q3), potentially impacting the broader economy.

In the second quarter, external demand rose 0.3% quarter-on-quarter, rebounding from a 0.8% decline in the previous quarter, contributing to a 0.3% economic expansion.

Revisions to external demand trends could signal a loss of economic momentum, potentially curbing BoJ rate hike bets. A less hawkish BoJ policy stance would weigh on demand for the yen. On the other hand, improving external demand may boost expectations of a BoJ rate hike and lift appetite for the Yen.

USD/JPY Daily Outlook: Fed Speakers in Focus

Later in the session on Monday, FOMC members’ speeches will require attention following Friday’s Personal Income and Outlays Report.

Calls to delay rate cuts in response to a pickup in inflationary pressures could send USD/JPY toward the 200-day Exponential Moving Average. On the other hand, rising concerns about a cooling labor market could fuel speculation about multiple Fed rate cuts, pushing the pair below the 50-day EMA. If breached, 146 would be the next key support level.

The USD/JPY remains exposed to the possibility of the BoJ and the Fed diverging on monetary policy, potentially fueling USD/JPY volatility.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Hawkish BoJ rhetoric, stronger Japanese Manufacturing PMI, or dovish Fed cues could push USD/JPY toward 145.
• Bullish USD/JPY Scenario: Dovish BoJ signals, softer Japanese data, or hawkish Fed signals may drive the pair toward the 150.

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

While speculation heightens over the BoJ, the RBA’s policy stance also faces scrutiny, with markets betting on an RBA rate cut in Q4.

AUD/USD: China Manufacturing PMI to Spotlight Aussie Trade Terms

Turning to the AUD/USD pair, the S&P Global China General Manufacturing PMI will influence Aussie dollar demand. Economists expect the PMI to remain unchanged at 49.5 in August.

A higher PMI reading, driven by rising new orders, could boost Aussie trade terms, given that China accounts for around one-third of Australian exports. With a trade-to-GDP ratio of over 50%, improving trade terms would bolster the Aussie economy, supporting a less dovish RBA rate path.

Conversely, a sharper contraction, with weaker external demand, may raise expectations of an RBA rate cut in Q4.

In July, RBA Governor Michele Bullock commented on the significance of trade terms with China, stating that trade terms with China remain crucial. Governor Bullock added:

“If China bolsters its economy with fiscal stimulus, that could cushion the impact of tariffs on Australia’s economy.”

Today’s PMI data will draw greater interest given that China and the US resumed trade talks. CN Wire reported that Li Chenggang, China’s chief trade negotiator, met with US officials last week.

Progress toward a favorable US-China trade deal could fuel demand for the Aussie dollar, given Australia’s reliance on demand from China.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Weaker Chinese PMI data or dovish RBA cues. These factors could push AUD/USD toward the 50-day EMA, exposing the 200-day EMA.
• Bullish AUD/USD Scenario: Stronger Chinese PMI data or hawkish RBA rhetoric. These factors could send AUD/USD toward the $0.6550 resistance level, bringing the $0.66 level into sight.

Explore our full AUD/USD analysis, including key trends and trade data, here.

AUD/USD Daily Outlook: Will Fed Speakers Narrow Rate Differentials?

While economists expect a November RBA rate cut, markets remain divided on the Fed’s rate path through the fourth quarter.

Support for Fed rate cuts beyond September could narrow the US-Australia interest rate differential. A narrow rate differential may send AUD/USD toward the August 29 high of $0.65486. A break above $0.65486 and $0.6550 could pave the way toward the $0.66 level.

However, calls to delay Fed rate cuts would widen the rate differential, pushing the pair toward $0.65 and the 50-day EMA. If breached, the 200-day EMA would be the next key support level.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ commentary and Japanese economic data.
• USD/JPY and AUD/USD: Fed speakers.
• AUD/USD: Aussie data, China PMI data, and RBA policy signals.

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