Meanwhile, AUD/USD and NZD/USD remain under strong pressure.
The U.S. dollar gained strong upside momentum against a broad basket of currencies after Fed officials signaled that they were ready for additional rate hikes. Not surprisingly, the Japanese yen, the Australian dollar, and the New Zealand dollar continued to move lower.
Today, USD/JPY traders focused on the inflation data from Japan. Inflation Rate increased by 0.5% month-over-month in July, compared to analyst forecast which called for a decline of 0.1%.
On a year-over-year basis, Inflation Rate grew by 2.6%. Core Inflation Rate increased by 2.4% year-over-year, in line with the analyst consensus.
Higher-than-expected inflation did not provide any support to the Japanese yen. Traders believe that the BoJ will remain focused on economic growth and ignore inflation which remains at moderate levels by modern standards.
AUD/USD is currently trying to settle below the 0.6900 level. The strength of the U.S. dollar and the continuation of the pullback in commodity markets serve as bearish catalysts for AUD/USD.
Traders are worried that aggressive rate hikes from the Fed will push the U.S. economy further into recession. If these worries persist, commodity-related currencies like the Australian dollar will remain under pressure.
In case AUD/USD manages to settle below the 0.6900 level, it will gain additional downside momentum and head towards the next support level, which is located at 0.6870.
NZD/USD is driven by the same catalysts as AUD/USD. Traders are selling commodity-related currencies amid recession worries.
The recent rate hike from RBNZ did not provide any support to NZD/USD as the market expects additional rate hikes from the Fed.
Currently, NZD/USD is moving towards the support level at 0.6210. If NZD/USD declines below this level, it will head towards the next support at 0.6190.
For a look at all of today’s economic events, check out our economic calendar.
Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.