Asia Day Ahead: Asian markets diverge on mixed risk sentiments and tariff uncertainty

Risk sentiments mixed as Asian markets diverge

Risk sentiment remains cautious in today’s session, with Asian markets delivering mixed performances. At the time of writing, the Nikkei 225 is down 0.40%, the ASX 200 is up 0.56%, and the KOSPI is down 0.24%. Donald Trump’s tariff threats have created some divergence, with Wall Street closing in the green overnight, while trade-dependent markets in Asia and Europe face downward pressures.

Markets brace for tariff uncertainty

Compared to Trump’s first term, markets may be better prepared for his latest tariff threats. However, deviations from his earlier tariff promises appear to be adding confusion rather than clarity. The recent threat suggests a clearer plan compared to 2018, and tariffs may be implemented earlier than anticipated. This could be a strategy to push trading partners to the negotiating table, with the final implementation likely involving some level of compromise.

US dollar faces resistance as yields rise

The US dollar index (DXY) pared earlier gains, while US 10-year Treasury yields edged over three basis points (bp) higher. The US dollar may encounter near-term resistance at last week’s high of 107.78, as the combination of new tariff threats and a less dovish tone from the Federal Reserve (Fed) minutes failed to sustain the dollar’s gains. This may suggest that much of the news is already priced in.

Upcoming focus will shift to the US core Personal Consumption Expenditures (PCE) price index, which could provide further clarity on the Fed’s rate outlook. The current lack of consensus in market rate expectations indicates that any surprises in inflation data could lead to significant shifts in rate bets.

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

The USD/JPY pair has recently declined to trade near its 200-day moving average (MA), currently around 151.95. This level aligns with an upward trendline support, forming a crucial confluence zone. The daily Relative Strength Index (RSI) has returned to its mid-line, indicating a potential technical reset.

Historically, the 200-day MA has provided support on at least two occasions. A breakdown below this level could signal increased downside risk for buyers, potentially leading to a move towards the 148.60 area. Traders should monitor price action around the 200-day MA closely, as it may determine the pair's near-term direction.

USD/JPY daily chart

Today's economic data shows mixed inflation results in Australia

Australia's inflation figures were mixed today, as the monthly consumer price index (CPI) indicator fell to 2.1%, below the expected 2.3%. Conversely, the trimmed mean rate increased to 3.5% from the previous 3.2%. This mixed outcome might not provide enough confidence for the central bank to significantly accelerate the rate easing process, with expectations still tilted towards a rate move in May next year.

AUD/USD responds to inflation data

The AUD/USD pair saw an uptick as buyers rallied to defend an upward trendline support that has been in place since October 2023. Despite a recent bounce from this level, the recovery has been short-lived. A move back above yesterday's low may be necessary to restore confidence in a more sustained recovery for the currency pair.

This analysis provides insights into the current economic climate in Australia and its impact on forex movements, highlighting the complex interplay between inflation data and monetary policy expectations.

AUD/USD daily chart