The US Dollar has gained strength against both the Australian Dollar and Japanese Yen ahead of key central bank decisions, with market participants closely watching the Federal Reserve's (Fed) upcoming policy announcement on Wednesday and the Bank of Japan's (BoJ) decision on Friday [1][2]. The AUD/USD pair trades near 0.7120, down from four-month highs near 0.7200 earlier in the month, reflecting a bearish tone as it remains below both the 20-period and 100-period Simple Moving Averages (SMA) at 0.7152 and 0.7178, respectively. The Relative Strength Index (RSI) is near 30, indicating stretched downside momentum but not a confirmed reversal [1]. Immediate resistance levels are noted at 0.7129, 0.7134, and 0.7141, while horizontal support is at 0.7119; a break below this could expose further weakness [1].
For USD/JPY, the pair has rebounded to around 155.00, up 0.41% on the day, continuing its recovery from levels below 153.00 last week. The Japanese Yen is underperforming, down 0.3% versus the USD and lagging all G10 currencies, as noted by Scotiabank strategists [2]. The Yen faces additional headwinds from rising global oil prices, which increase import costs for Japan's energy-dependent economy [2].
Market expectations for the Fed are leaning toward a 25-basis-point rate hike to 3.75%-4.00%, with the CME FedWatch tool indicating a 92% probability of an increase on Wednesday [1][2]. This sentiment is reinforced by a solid August jobs report and robust private-sector employment data, with ADP's four-week average rising to 16.25K from 12.25K, suggesting the US labor market remains resilient [1][2]. US Retail Sales for August are also awaited, with a firm print expected to support the hawkish case for the Fed [1].
The BoJ is anticipated to raise rates by 25 basis points on Friday, with risk centered around the central bank's tone and guidance on the pace of future hikes. One additional hike is almost fully priced before year end, according to Scotiabank [2]. Technical analysis highlights key support for USD/JPY at 153 and 152, with resistance at 155 [2]. Several factors, including expectations of more aggressive BoJ tightening, unwinding of global carry trades, and repatriation of foreign assets by Japanese investors, could provide underlying support to the Yen and limit further USD/JPY gains [2].
CONCLUSION
The US Dollar's strength ahead of the Fed's expected rate hike has pressured both the Australian Dollar and Japanese Yen, with market participants closely watching upcoming central bank decisions for further direction. Robust US employment data and high expectations for Fed tightening have reinforced USD gains, while the BoJ's anticipated rate hike and guidance remain key for the Yen. Volatility is likely as traders await the outcomes of these pivotal policy meetings.