USD/JPY retreats from 160.00 as ceasefire crushes Oil premium
USD/JPY touched 160.46 before reversing sharply as the ceasefire sent the US Dollar tumbling across the board.Japan's household spending dropped 1.8% YoY in February, far worse than the 0.7% decline expected by economists.The Oil crash below $90 eases import cost pressures on Japan, strengthening the case for a BoJ hike this month.USD/JPY reversed sharply on Tuesday, touching a session high around 160.50 before collapsing below 159.00 to settle near 158.85. The pair had briefly breached 160.00 for the first time since July 2024, a level that previously triggered direct intervention from Japan's Ministry of Finance, before the late-session reversal erased the entire day's gains and then some. The selloff accelerated after President Trump announced a two-week suspension of military operations against Iran, crushing the US Dollar's safe-haven bid.
On the Japanese Yen side, the collapse in WTI Crude Oil from above $106 to below $90 per barrel is a significant relief for Japan as a major net energy importer. Elevated oil costs had been feeding through to producer and consumer prices, complicating the Bank of Japan's (BoJ) rate path. The plunge may ease some of that imported inflation pressure, though it also strengthens the case for a rate hike by reducing the risk that tighter policy tips the economy into recession. February household spending fell 1.8% YoY, significantly worse than the 0.7% decline consensus, suggesting consumer demand remains fragile even before the full impact of higher energy costs. Markets continue to price in roughly a 70% probability of a BoJ rate hike later this month. Finance Minister Katayama flagged rising speculative activity in currency markets last week, and Prime Minister Takaichi said she would pursue direct talks with both Iran's leadership and President Trump. Thursday's Japanese Producer Price Index (PPI) data could further inform the BoJ's calculus ahead of the April 28 meeting.
On the US Dollar side, S&P 500 futures surged 1.1% and Nasdaq futures jumped 1.2% on the ceasefire confirmation, pulling capital out of the Dollar and into risk assets. The pause was brokered by Pakistan's Prime Minister, with Trump describing a 10-point Iranian proposal as a "workable basis" for negotiation, though Tehran had publicly rejected a 45-day ceasefire just hours earlier. This was Trump's fourth deadline extension since the conflict began in late February, and traders had been positioning for exactly this outcome throughout the session.
February Durable Goods Orders missed at negative 1.4%, though the ex-transportation reading was firmer at 0.8%. The Federal Open Market Committee (FOMC) Minutes are due Wednesday, alongside speeches from Federal Reserve (Fed) officials Daly and Waller. The key question now is whether physical shipping traffic actually resumes through the Strait of Hormuz; without that, the Oil premium will rebuild and the Dollar's safe-haven bid will return.
USD/JPY 1-hour chart
USD/JPY drops below the 200-period EMA on the one-hour chart as Stochastic drifts in neutral territoryOn the one-hour chart, USD/JPY has fallen below the 200-period Exponential Moving Average (EMA) around 159.50, after failing at the 160.50 high. The pair is now trading close to 158.85, well below that moving average, with the Stochastic Oscillator sitting in neutral territory after pulling back from an earlier overbought reading. The sharp rejection from 160.00 and the break below the 200-period EMA suggest sellers have gained control in the short term. A break below the 158.30 area would expose the March lows near 157.50, while a reclaim of 159.50 and the 200-period EMA would be the first sign of buyers re-engaging toward the 160.00 level.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
How does the health of the Chinese Economy impact the Australian Dollar?China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
How does the price of Iron Ore impact the Australian Dollar?Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
How does the Trade Balance impact the Australian Dollar?The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.