USD/JPY and AUD/USD Forecast: Tariff Headwinds and Fed Signals Shape Currency Momentum

The Japanese Yen and Australian Dollar are trading under opposing forces this week, with central bank policies and global trade developments steering both pairs through crucial resistance levels. With the Federal Reserve offering mixed signals and trade negotiations in focus, USD/JPY and AUD/USD remain sensitive to political and economic crosswinds.

USD/JPY Outlook: Tariffs Threaten Japan’s Economy as BoJ Signals Caution

The USD/JPY pair is navigating volatility ahead of the extended August 1 tariff deadline, with President Trump escalating pressure through a 25% tariff targeting Japanese imports—up from the earlier 24% levy. Markets are responding with caution, as the Japanese economy, already contending with soft inflation, braces for fallout that could derail the Bank of Japan’s (BoJ) monetary tightening path.

Export pressure is evident: vehicle shipments to the U.S. saw prices slump by 19.4% YoY in June, the sharpest drop on record. As auto exports represent a critical pillar of Japan’s GDP (8-10%), this decline threatens wage growth and private consumption—both key to achieving inflation targets.

USD/JPY reached a high of 147.18 on July 9, reflecting rising concern about trade disruption and policy uncertainty. If US-Japan talks falter, expectations for a BoJ rate hike in 2025 may fade, lending further support to the Yen.

Japan’s latest Producer Price Index print for June came in at 2.9% YoY, easing from May’s 3.3%—a sign that upstream inflation is moderating, partially due to tariff impacts. Fed commentary later today may guide the next move, with any dovish tilt likely to push USD/JPY lower toward the 145 handle.

USD/JPY: Key Technical Levels

• Bullish Scenario: Break above 147.18 may target 148.00, especially if Fed hints at a hawkish pause.
• Bearish Scenario: A trade resolution or dovish Fed tone could drag the pair toward 145.00 and the 50-day EMA.

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AUD/USD Forecast: Aussie Dollar Finds Support as RBA Stays Put, Eyes on China

AUD/USD hit $0.6594 on July 11—its highest since November 2024—after the Reserve Bank of Australia surprised markets by holding interest rates steady. Governor Michele Bullock indicated that while U.S. tariffs may contribute to disinflationary forces, their impact on Australia is expected to be limited.

However, the Australian Dollar remains vulnerable to developments in U.S.-China trade relations. Despite avoiding direct tariffs, China may face indirect pressure due to new U.S. duties on transshipments through Vietnam and Indonesia—key trade partners whose exports to the U.S. have surged.

Since China accounts for over a third of Australia’s exports, any disruption in the China-U.S. supply chain could weigh on AUD. Yet, expectations for further stimulus out of Beijing and hopes for a U.S.-China trade deal are offering near-term support.

AUD/USD: Key Technical Levels

• Bullish Scenario: Continued optimism around China and dovish Fed commentary could lift AUD/USD to $0.6650.
• Bearish Scenario: A deterioration in trade sentiment or Fed delay in rate cuts may push the pair back toward the $0.6500 support level.

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What to Watch:

• Fed Speakers: Commentary today may shape rate cut expectations and impact both USD/JPY and AUD/USD.
• Trade Talks: Developments in US-Japan and US-China negotiations remain key for Yen and Aussie momentum.
• Central Bank Signals: Rhetoric from the BoJ and RBA could shift investor positioning and technical outlooks.

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