FX Watch: AUD/JPY, USD/JPY
Australian inflation grew less than expected in February, with the monthly CPI rising 2.4% year-on-year—below the 2.5% forecast and down from 2.7% in January.

Australian inflation cools in February
Australian inflation grew less than expected in February, with the monthly consumer price index (CPI) rising 2.4% year-on-year—below the 2.5% forecast and down from 2.7% in January. With policymakers sounding some caution previously about further rate cuts, the recent inflation read should offer the reassurances that the disinflationary trend is on track and prompt a reassessment of the balance between inflation and growth.
Over the past month, Australia’s flash Purchasing Managers' Index (PMI) numbers have highlighted some stability, with both manufacturing and services activities improving from the previous month. Its real Q4 gross domestic product (GDP) has outperformed expectations as well. This will however have to be weighed against some softness in employment numbers. Given these dynamics, the case for a gradual return to neutral rates remains intact, with market bets reinforced for a 25 basis point (bp) cut in May. This timeline will offer some runway for policymakers to evaluate the impact of last month’s 25 bp reduction and gain further clarity on US tariff developments.
AUD/JPY: Falling channel needs to be overcome for bullish conviction
The AUD's initial dip following the downside inflation surprise was short-lived, with the brief move below the 94.34 level in today’s session appearing to be more of a shake-out. Recent near-term higher high, higher low formation may be encouraging for the bulls, though on the broader scale, a falling channel formation still needs to be overcome to confirm a bullish trend reversal.
Key resistance stands at the 95.81 level, where the upper channel boundary aligns with the March 18 high and the daily Ichimoku Cloud resistance. Meanwhile, the daily relative strength index (RSI) is back at its midline, which it has struggled to sustain above since November 2024. Although recent buying interest, supported by an improved risk environment, has provided some upside momentum, a decisive move above the midline is required to reinforce bullish conviction.

USD/JPY: Attempting for a near-term turnaround
The US dollar's recovery over the past week has driven a channel breakout in USD/JPY, supported by some EUR unwinding and softer US tariff headlines, which have prompted markets to reassess trade escalation and recession risks in the US economy. The hurdle for buyers now is the 3 March high at 151.31—a break above this level would confirm a higher high and reinforce the bullish reversal.
Meanwhile, the daily RSI is once again testing its midline. Having failed to break above on two previous attempts since January, continued consolidation around this level could indicate buyers maintaining support, potentially raising the prospects for further recovery.

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