Asia Day Ahead: USD/JPY, AUD/USD on watch

Asia Open

Risk sentiments are still trying to find some footing in today’s session, with Asian markets turning in a mixed start. At the time of writing, the Nikkei is down 0.40%, the ASX up 0.56% and the KOSPI down 0.24%. Donald Trump’s tariff threats are creating somewhat of a divergence here, with Wall Street closing in the green overnight, while more trade-dependent markets in Asia and Europe are facing some downward pressures.

In a way, markets may be more prepared for Trump’s tariffs compared to his first term, with some deviation from his earlier tariff promises seemingly adding more confusion than clarity for markets. Of course, the recent threat does suggest that he has a clearer plan than before in 2018 and tariffs could likely come much earlier than expected, but we may expect this as a move to bring trading partners to the negotiating table and the final implementation may likely have some degree of compromise.

The US dollar pared earlier gains, while US 10-year Treasury yields edged more than three basis point (bp) higher. There may be some near-term resistance for the US dollar to cross last week’s high at the 107.78 level, given that new tariffs threat and a less dovish tone from the Federal Reserve (Fed) minutes did not see the US dollar retaining much of its gains, which may suggest that much may have been priced for now. Of course, attention will be on the upcoming US core Personal Consumption Expenditures (PCE) price index to offer more cues on Fed’s rate outlook. The lack of a clear consensus in market rate expectations suggest that rate bets may be highly sensitive to any inflation surprise.

USD/JPY back to trade near its 200-day moving average (MA)

Perhaps one to watch may be the USD/JPY, with recent exhaustion in the US dollar bringing the pair back to trade near its 200-day MA. The 151.95 level may be the crucial support confluence to hold, where an upward trendline support remains in place as well. Its daily relative strength index (RSI) is now back at its mid-line as well, offering somewhat of a technical reset. With the 200-day MA offering some support on at least two previous occasions, any breakdown ahead may be a key risk of buyers, which may see a move towards the 148.60 level next.

AUD/USD trying to defend upward trendline

The economic calendar today saw Australia’s inflation coming mixed. The monthly consumer price index (CPI) indicator edged lower to 2.1% versus the 2.3% expected, but the trimmed mean rate rose to 3.5% from the 3.2% prior. The mixed read may not offer the conviction for the central bank to accelerate their rate easing process significantly just yet, with rate expectations still leaning for a move in May next year.

The AUD/USD saw a move higher, as buyers attempt to defend an upward trendline support that has been in place since October 2023. Recent bounce off this level has been short-lived and we may have to see a move back above yesterday’s low to regain our conviction for a more sustained recovery to the upside.