Tensions from ongoing U.S.-Japan trade discussions and key Australian retail sales data are setting the stage for potential volatility in the USD/JPY and AUD/USD pairs. The Japanese Yen may strengthen on rate hike hopes, while the Australian Dollar could gain from inflation-driven retail spending.
USD/JPY: Eyes on Tariff Deal and Bank of Japan’s Hawkish Tilt
The USD/JPY pair is under pressure as markets weigh the impact of a potential U.S.-Japan trade deal before the July 9 deadline set by President Trump. If negotiations succeed, expectations for a third-quarter rate hike by the Bank of Japan (BoJ) may rise—adding strength to the Yen and pushing the pair downward.
Fresh data from Japan’s automotive sector show a sharp -12% drop in passenger car export prices to North America in May, following April’s -4.5% decline. This marks a record contraction, primarily caused by U.S. import tariffs. With manufacturers absorbing these costs, margin compression may affect wage growth and consumer confidence—two major components of Japan’s domestic demand.
BoJ’s latest statement signaled continued tightening, saying rate hikes will align with improving economic activity and inflation outlook. However, any stall in trade progress could delay the central bank’s actions, limiting further Yen appreciation.
USD/JPY Traders Should Watch:
- July 2 BoJ rhetoric and U.S.-Japan trade updates.
- ADP employment report, expected to show an 85K jobs increase (vs. 37K in May).
- U.S. Fed comments that may shape interest rate expectations.
Scenario Forecasts:
- 🟥 Bearish USD/JPY: Trade deal progress, weak U.S. labor data, hawkish BoJ → USD/JPY could fall toward 142.50
- 🟩 Bullish USD/JPY: Stalled trade talks, strong jobs data, dovish BoJ → USD/JPY could test 145.00 and its 50-day EMA
AUD/USD: Aussie Retail Sales in Spotlight as RBA Policy Expectations Shift
The Australian Dollar is hovering near the $0.66 level as markets await key May retail sales data. Economists forecast a +0.3% m/m rise, reversing April’s -0.1% decline. A strong beat could stoke inflation fears and push the Reserve Bank of Australia (RBA) toward a more hawkish stance—lifting AUD/USD higher.
In her latest remarks, RBA Governor Michele Bullock noted that while low rates and rising wages are expected to boost consumption, household spending remains below expectations. If today’s data surprises to the upside, it could reduce the likelihood of rate cuts, supporting further Aussie strength.
AUD/USD Traders Should Monitor:
- May retail sales figures
- Fed and RBA commentary
- US-China trade headlines, which may influence global risk appetite
Scenario Forecasts:
- 🟥 Bearish AUD/USD: Weak retail numbers, dovish RBA, or renewed trade tensions → AUD/USD may fall to $0.6500
- 🟩 Bullish AUD/USD: Strong spending data, hawkish RBA rhetoric, easing U.S.-China friction → AUD/USD could rally to $0.6600
What to Watch – July 2, 2025
🔹 USD/JPY:
- U.S.-Japan trade deal developments
- BoJ policy updates
- U.S. ADP jobs data and Fed commentary
🔹 AUD/USD:
- Australian retail sales data
- RBA rate outlook
- Global risk sentiment and U.S. policy signals
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