Australian Dollar Quarterly Outlook
Last Quarter Performance
Along with most of the major currencies, the Aussie has been volatile over the last quarter as geopolitical influences and a change in the underlying fundamentals on both sides of the currency equation have seen some strong moves in both directions. The fact that the AUDUSD has recorded both an annual low and an annual high in the last few trading weeks is testimony to that. Where we have seen some good trends, particularly in the last couple of weeks has been on the crosses where the Aussie has broken lower, particularly against the Euro and the Pound.
Domestic Data
Australian domestic data has pulled back in the first quarter of the year and we have seen a rate cut from the Reserve Bank, however CPI numbers in particular still remain higher than the committee would like, despite a lower-than-expected 2.4% print this week. The job market also remained strong in the last quarter with the February data coming in well above market expectations with the full-time component in particular indicating that we are sometime away from real weakness. However this month’s data saw a turnaround for those numbers with over 50k jobs being lost in the previous month, but most traders feel that the RBA would like to see a trend lower before this conclusively pushes them to cut rates.
Reserve Bank of Australia Expectations
As mentioned above, we did get a rate cut from the Reserve Bank in February as the central bank at last joined its major contemporaries in reducing rates. However, the rhetoric around the rate update has led many to label the move a ‘hawkish cut’ and despite recent weaker data prints for both the jobs data and the CPI, expectations only sit at an 8% chance that we will see another cut at the next meeting on the 1st April. June is currently being priced in by the bond market as the most likely meeting for another cut from the bank but there a growing calls for them to hit the button in May given those recent data prints.
Commodity Influence
The Aussie does tend to have a good correlation with its major commodity exports and even though there can be a lag the correlations between Copper, Iron Ore and Gold are strong. It is likely that we will continue to see volatility in these products with particular regard to geopolitical factors into the next quarter and traders will remain vigilant on moves in these products. Copper had a strong start to the year, as indeed did Gold but has drifted lower in recent weeks whilst Iron Ore also dropped off annual highs which could further pressure the Aussie.
Geopolitical Influences
US – There is no doubt that the new Trump government has had significant influence on international markets and the Aussie is no exception. Tariffs are the main source of volatility and traders are expecting the Aussie to remain under pressure if we see more tariffs implementation from the US in the weeks and months ahead.
China – As one of Australia’s biggest trading partners and a key buyer of Australian commodities, China’s fortunes are closely tied to that of the Australian currency and if we do see Chinese markets weaken further both from a domestic perspective and from US tariff implications the once again, we could see more pressure on the Aussie. Conversely any relief on tariffs or improvement in the Chinese data then it gives the Aussie scope to rally strongly.
Technical Analysis
The Aussie dollar is looking weak from a technical perspective as a strengthening dollar and global growth concerns, including almost daily updates on US tariffs, continue to weigh on the currency. A challenge of trendline support on the Daily chart at 0.6105 and the annual low at 0.6085 could see a hard break and take the pair lower swiftly under the key psychological level at 60 cents. This could then result in further downside potential with the next major technical levels sitting down at 2020 lows around 55 cents. A topside move could see the relatively close annual high at 0.6408 challenged with extended moves likely to take the currency up to the 200-Day Moving Average, currently just above 65 cents, with longer term resistance now sitting on the trendline just under 68 cents.
Resistance 2: 0.6507 – 200 Day Moving Average
Resistance 1: 0.6408 – 2025 High
Support 1: 0.6105 – Trendline Support
Support 2: 0.6085 – 2025 Low
Yen Quarterly Outlook
Once again, the Japanese Yen has been one of the biggest movers in major currencies over the last quarter and given the geopolitical uncertainty and potential for interest rate differentials in the coming weeks and months, this pattern looks set to continue. The Yen continues to face a complex environment, where inflationary pressures, global economic uncertainties, and the Bank of Japan’s (BOJ) monetary policy stance will be key drivers.
Domestic Data
Inflation in Japan is expected to remain high in the coming quarter with the Bank of Japan forecasting an average of 2.4% in the coming year. The March Tokyo CPI number came in at 2.4% against the expected 2.2% confirming these concerns which should keep the central bank relatively hawkish and although the recent Tankan survey indicated a decrease in business activity, we feel that inflation considerations will continue to dominate.
Bank of Japan Expectations
The Bank of Japan kept its interest rates on hold in March and despite the threat of persistent inflation, they are expected to play a ‘wait and see’ game plan into the next quarter as they remain cautious ahead of global uncertainties across markets, with particular regard to US trade policies. If geopolitical uncertainties do settle in the next weeks and months, then expect inflation concerns to lead to further rate hikes this year, with two more 2 basis point moves anticipated by the market in 2025.
Geopolitical Influences
Without doubt the excessive moves that we have seen in the Yen in the last quarter have been dominated by tariff updates from President Trump and the new US administration and that looks set to continue well into Q2. The Yen is particularly vulnerable to global trade threats and more uncertainty should see the Yen appreciated both against the dollar and on the crosses. Trends that have been evident over Q1.
Technical Analysis
The longer-term Daily chart clearly shows that USDJPY remains in its down trend although the volatility within ranges has been high. The pair has lost nearly 8% from it’s January peak to its March low in 2025 and despite a good bounce off lows under 147, it still remains offered on rallies. Strong resistance levels are now coming in at the trendline level at 150.80 and recent highs near 151.20 with the 200-Day Moving Average sitting slightly higher than those levels at 151.51. Support now comes in on the trendline 147.35 and 2025 low at 146.52.
