Intervention has already delivered a powerful lift for the Aussie and Kiwi. Whether that extends may depend on another round of official action and the Bank of Japan.
- Asian FX intervention may not be finished yet
- BOJ surprise hike risk has increased marginally
- Softer US data adds to dollar pressure
- and break to fresh highs
AUD/USD and NZD/USD ripped higher on Friday, fuelled by broad-based US dollar weakness following apparent coordinated intervention from Asian foreign exchange authorities, softer-than-expected US economic data and a surge in risk appetite after strong earnings from Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
Coordinated Intervention Rattles the US Dollar
The biggest driver behind the Australian and New Zealand dollars’ outperformance was suspected intervention by Japanese authorities, likely undertaken in coordination with South Korean authorities and with at least tacit support from the United States. The move came with the US dollar already under pressure after the Fed opted against raising on Wednesday, providing an ideal backdrop to maximise the impact.
Source: TradingView
An important consideration for traders on Friday is that intervention often doesn’t occur in one sitting. Earlier this year, Japanese authorities stepped into the market over several sessions rather than relying on a single operation. If authorities return to the market again, particularly around the Bank of Japan policy decision later in the session, it would point to renewed upside risks for AUD/USD and NZD/USD.
Softer US Data Adds to Dollar Headwinds
Amplifying the effectiveness of intervention, US economic data broadly disappointed on Thursday. inflation rose 0.1% in June, below the 0.2% expected, while the eased from 3.4% to 3.3%. The unrounded increase was 0.14%, meaning the downside surprise was marginal rather than dramatic.
Accompanying personal income and spending figures were also disappointing. Personal income rose just 0.2%, undershooting expectations, while personal spending increased 0.3%. With spending continuing to outpace income, the household savings rate fell to 2.7%, its lowest level in four years. That questions the sustainability of the strong rebound in consumer spending seen during the June quarter.
US Q2 also disappointed, weighed down by a sizeable drag from net trade that masked underlying strength in business investment and consumer spending. Annualised growth slowed to 1.5%, below the 2.1% consensus forecast. Consumer spending rebounded to a 3.2% annualised pace after a subdued first quarter, while business investment surged 15.2%, continuing to be supported by AI-related capital expenditure. The downside surprise instead reflected a widening trade deficit and inventory drawdowns, which subtracted almost 1.7 percentage points from headline growth.
Risk Appetite Returns with a Vengeance
Alongside softer US economic data and suspected intervention, the Aussie and Kiwi ripped higher as risk appetite surged. Strong earnings updates from Microsoft and Amazon fuelled the rally, with Microsoft adding more market value in a single session than any listed company on record.
Given their sensitivity to global risk sentiment, the improvement in sentiment helped drive gains not only against the US dollar, but across most major crosses, with the yen the one exception.
All Eyes Turn to Tokyo
When it comes to what may influence the Aussie and Kiwi on Friday, the events of the past 24 hours suggest risk appetite, the Bank of Japan policy decision and the threat of further intervention from Asian FX authorities will matter far more than economic data. That was reinforced by the total lack of reaction to an upside surprise in Tokyo’s July inflation report released early Friday.
Intervention Raises the Stakes for the BOJ
I previewed the Bank of Japan meeting in detail earlier this week, and much of that analysis still holds true. However, the intervention episode over the past 24 hours has increased the risk, at least marginally, of the Bank of Japan moving pre-emptively to raise rates today rather than later in the year, with a full hike already priced into the overnight index swap curve by year-end.
US Treasury Secretary Scott Bessent has made it clear he wants the Bank of Japan to continue normalising policy. If Japanese authorities are already working alongside their South Korean and US counterparts to strengthen the yen through intervention, it raises the question of whether the Bank of Japan may choose to oblige by delivering a surprise rate hike today.
While such a shock outcome would point to a sharply lower and potentially broader US dollar weakness, it would not necessarily be an outright positive for the Australian and New Zealand dollars. They may initially pop against the greenback, but given their sensitivity to shifts in risk appetite, would likely underperform lower-beta currencies if a surprise Bank of Japan hike sparked a broader risk-off episode.
As for when the Bank of Japan decision is likely to drop, it remains a frustration for traders worldwide that there is still no set time for the announcement. Generally, it tends to arrive around 12:30 pm Tokyo time, although it can come earlier or later depending on how long the meeting runs. However, the general rule of thumb is that the longer it takes for the decision to drop, the greater the perceived risk that there may be some form of policy shock on the way. So expect markets to become extra twitchy if we extend well beyond 12:30 pm Tokyo time.
AUD/USD Breakout Puts Higher Levels in Play
Source: TradingView
AUD/USD had been coiling in what resembles an ascending triangle before a false downside break followed the softer-than-expected Australian June quarter underlying inflation report on July 29. However, that move has now been completely reversed, with the pair not only breaking back into the triangle structure but also reclaiming the 50-day moving average and clearing resistance at 0.7020, the top of the structure.
With the price now holding above 0.7020, it provides a level to build long setups around, looking for an extension of the bullish move. Longs could be considered above that level, with a stop below, initially targeting the 100-day moving average at 0.7053 before resistance at 0.7080. A break above the latter would open the door for a potential run towards 0.7200.
The oscillators marginally favour long setups over shorts. RSI(14) has pushed above the neutral 50 level and continues to edge higher, while MACD has flipped into positive territory after staging a bullish crossover earlier this month. It’s not a definitively bullish signal, but it does suggest upside momentum is building.
Should AUD/USD slip back below 0.7020 and hold there, it would instead point to a pullback towards the lower boundary of the triangle structure, which comes in around 0.6975 today.
Kiwi Joins the Breakout Party
Source: TradingView
NZD/USD offers a similar technical picture to AUD/USD, breaking higher after grinding higher within an uptrend over recent weeks. The latest surge has seen it break above the confluence of the 50, 100 and 200-day moving averages, along with resistance at 0.5825 and, importantly, 0.5860, a level that has repeatedly acted as both support and resistance over the past couple of months.
The break above 0.5860, taking the pair to its highest level since early June, suggests scope for a further extension of the bullish move. For those looking to play from the long side, longs could be considered while the pair holds above 0.5860, with a stop below, initially targeting 0.5920, another level that has repeatedly acted as support and resistance this year. A break above that would open the door for a retest of the double top at 0.5992 set in May and early June.
The oscillators favour long setups over shorts. RSI(14) has climbed to 64, with the bullish signal reinforced by MACD, which has crossed above the signal line, continues to diverge and remains in positive territory. That suggests upside momentum is building, favouring long setups.
Should NZD/USD slip back below 0.5860 and hold there, it would instead point to a pullback towards the moving average confluence zone and the uptrend, which comes in around 0.5775 today.
