Japanese Yen and Aussie Dollar Forecasts: China PMI, Aussie PPIs, and US Jobs Report in Focus

Japan Labor Market to Spotlight the Bank of Japan

On Friday, August 1, Japan’s labor market faced market scrutiny after the Bank of Japan’s rate hold on July 31, influencing USD/JPY. The unemployment rate remained steady at 2.5% in June, while the Jobs/applications ratio unexpectedly fell from 1.24 in May to 1.22 in June.

The lower jobs/ applications ratio could signal weaker wage growth. Softer wages may curb household spending, dampening demand-driven inflation. A pullback in inflation could lower expectations of a BoJ rate hike, affecting appetite for the Japanese Yen.

The USD/JPY pair rose from 150.732 to 150.818 in response to the data on expectations of a less hawkish BoJ policy stance.

On Thursday, the BoJ kept interest rates at 0.5%. While the BoJ cited economic uncertainty, the Bank’s higher inflation forecasts signaled a potential 2025 rate hike. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked:

“The BoJ left rates on hold at 0.5% noting high uncertainty. With inflation forecasts revised up and worst-case tariffs scenarios averted due to the US/Japan trade deal another 0.25% hike is possible by year end.”

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

Later in the session on Friday, the US Jobs Report will fuel speculation about the Fed rate path. Economists forecast nonfarm payrolls to increase 110k in July after rising 147k in June, while expecting a pickup in wage growth and higher unemployment.

Stronger wage growth, higher-than-expected nonfarm payrolls, and a steady unemployment rate could close the door on a September Fed rate cut. A more hawkish Fed rate path may send USD/JPY to the March high of 151.208. On the other hand, weaker-than-expected labor market data may revive hopes for a Q3 Fed policy move, pushing USD/JPY toward the 149.358 support level.

Other stats include Manufacturing PMI and finalized consumer sentiment numbers. However, these will likely play second fiddle to the US Jobs Report.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: hawkish BoJ signals, weaker US jobs data, dovish Fed rhetoric. Such factors could send USD/JPY toward the 149.358 support level, potentially exposing the 200-day EMA.
• Bullish USD/JPY Scenario: Dovish BoJ rhetoric, strong US Jobs Report, hawkish Fed chatter. These may drive the pair toward the March high of 151.208.

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, producer prices will be in focus amid expectations of an August RBA rate cut. Economists forecast producer prices to rise 2.9% year-on-year in the second quarter, down from 3.7% in the first quarter.

Producers typically adjust prices subject to demand, lowering prices as demand weakens, and passing savings to consumers. Economists consider producer prices a leading inflation indicator, underscoring the significance of the data. A lower-than-expected reading may raise expectations of multiple RBA rate cuts, weighing on Aussie dollar demand.

Conversely, an unexpected rise in producer prices could suggest a less dovish RBA rate path, supporting appetite for the Aussie dollar.

Shane Oliver shared comments from RBA Deputy Governor Andrew Hauser on the softer Q2 CPI data, stating:

“RBA Deputy Gov Hauser noted the June qtr inflation data was “very welcome” & “very much” as expected. This suggests little change to RBA forecasts seeing trimmed mean inflation at target & seems consistent with the RBA resuming rate cuts in August. Which we think they will.”

China Caixin Manufacturing PMI to Fuel Aussie Dollar Volatility

While inflation data is crucial, economic indicators from China also require consideration. Economists forecast China’s Caixin Manufacturing PMI to fall from 50.4 in June to 50.2 in July.

A drop below the 50 neutral level would signal a slump in demand for Chinese goods. Given that China accounts for one-third of Aussie exports and Australia has a trade-to-GDP ratio of over 50%, weakening demand for Chinese goods may impact the Aussie economy.

Conversely, a pickup in manufacturing sector activity could support a less dovish RBA rate path, bolstering Aussie dollar demand.

During the July press conference, RBA Governor Michele Bullock highlighted the importance of China’s economy and stimulus plans, stating:

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

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Softer-than-expected Aussie producer prices, weaker China PMI data, rising US-China trade tensions. These factors could push AUD/USD toward the $0.64 level, exposing the 0.63623 support level.
• Bullish AUD/USD Scenario: Progress toward a US-China trade deal, hotter Aussie producer prices, or a stronger China Manufacturing PMI. These factors could send AUD/USD toward the 200-day EMA, bringing the 50-day EMA into sight.

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

AUD/USD Daily Outlook: US Jobs Report and Rate Differentials

Later today, the US Jobs Report will influence the Fed’s rate path and US-Australian interest rate differentials.

Stronger-than-expected labor market data would sink bets on a Fed rate cut. A more hawkish Fed policy stance would widen the rate differential in favor of the US dollar, pushing AUD/USD toward the $0.64 level. A break below $0.64 may enable the bears to target the $0.63623 support level.

On the other hand, a softer Jobs Report may raise expectations of a September policy move. A narrower rate differential could send AUD/USD toward the 200-day EMA. A sustained move above the 200-day EMA may pave the way to the 50-day EMA.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy guidance.
• USD/JPY and AUD/USD: US Jobs Report and Fed commentary.
• AUD/USD: Aussie producer prices, China Caixin Manufacturing PMI, and US-China trade developments.

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