The Australian economy keeps recovering from the coronavirus setback. The US Federal Reserve could help financial markets with a cautious stance. AUD/USD maintains its longer-term positive stance despite the dismal mood. The AUD/USD pair is finishing the week with modest losses but holding above the 0.7300 threshold. The commodity-linked currency even managed to post a fresh 2022 high of 0.7440 against its American rival before retreating. Overall, the aussie dealt pretty well with the risk-averse environment helped by gold, as the bright metal flirted with its record high of $2,075.64 a troy ounce. Geopolitical turmoil and inflation in the spotlight Financial markets were once again dependent on headlines related to the Russian invasion of Ukraine, where the situation worsened on a daily basis. Rays of hope surged throughout the week of a diplomatic solution, but for now, these have just been words. Moscow’s attacks on Ukrainian cities saw no pause in these two weeks of conflict. Meanwhile – and as the Reserve Bank of Australia insists on its wait-and-see stance – the market has rushed to price in a 50 bps rate hike coming from the US Federal Reserve next week. The country reported that the February Consumer Price Index surged to 7.9% YoY, its highest in four decades. The US central bank could still raise rates by 25 bps, something that will likely spur some optimism among stocks’ traders and negatively impact the greenback. Australian data continued showing signs of economic improvement coupled with rising inflation. March Consumer Inflation Expectations unexpectedly jumped to 4.9% from 4.6% in the previous month. The RBA will release the Minutes of its latest monetary policy meeting next week, while the country will publish February employment figures. In the US, the focus will remain on inflation and the central bank’s reaction to it, and the latest update on Retail Sales. AUD/USD technical outlook The AUD/USD pair trades around 0.7320, down some 40 pips in the week, but having posted a higher high and a higher low, which skews the risk to the upside. Additionally, the pair has managed to hold above all of its moving averages on the weekly chart, while technical indicators remain above their midlines, although losing their bullish strength. The daily chart shows that a bearish 200 SMA is providing intraday support a handful of pips below the current level, but also that the 20 SMA maintains its bullish strength below it and after crossing the 100 SMA. Technical indicators, in the meantime, turned lower within positive levels, without strength enough to hint at a bearish extension in the near term. The weekly low at 0.7247 is the immediate support level, followed by the 0.7170 price zone. A break below the latter should expose 0.7100. On the other hand, the 2022 high at 0.7440 is the level to beat to aim for a rally towards 0.7555, the October monthly high. AUD/USD sentiment poll According to the FXStreet Forecast Poll, AUD/USD could retain its bullish strength in the near term, but will likely give up afterwards. Bears become a majority in the monthly and quarterly perspectives, although the slump is expected to be moderated. On the other hand, the Overview chart shows that there are still hopes for bulls. The three moving averages maintain their bullish slopes, although with uneven strength. Still, the number of those betting for slides sub-0.700 has decreased, while there are more experts hoping for higher highs beyond 0.7500. 

Dollar/yen races through 2022 high of 116.35 on the way to a four-year top.  Technical conditions, pending US and Japan bank meetings and Ukraine all contribute to yen weakness. Putin’s "certain positive developments” comment undermines yen safety-trade. Fed expected to hike; BoJ to stand pat next week. FXStreet Forecast Poll highlights prior techincal resistance at 116.00 and 117.00 A combination of factors drove the USD/JPY to a four-year high on Friday.  Russian President Vladimir Putin’s comment that there were “certain positive developments” in talks with Ukraine undermined the yen safety trade. The close on Thursday at 116.12 was just below the four-year high of 116.35 from January 4. Next week, the Federal Reserve and Bank of Japan (BoJ) will diverge in practice as well as theory as the US central bank will raise its base rate and Japan’s will remain negative.  In combination, the elements ensured that the buying pressure that began from stop loss orders above 116.35 did not expire as the short squeeze waned above 116.50, but provided long-term logic to take the USD/JPY higher.   The Fed has all but promised a 0.25% hike on March 16. Treasury futures have the odds at 95.9%. Markets are undecided whether the governors will initiate a reduction of the bank’s $9 trillion balance sheet. With the Consumer Price Index (CPI) at 7.9% in February and sure to go higher in the coming months, a roll-off of maturing bonds would send a powerful signal to the credit markets that the Fed is serious about countering inflation. Treasury yields moved sharply higher this week, with the 10-year return just below its pandemic high and the 2-year several points over.  In contrast, the  Bank of Japan is expected to maintain its -0.1% main rate at its meeting on Friday. Japanese National CPI was 0.5% annually in January and that is expected to fall to 0.3% when the February figures are issued on March 17. The Core rate was -1.1% in January and is forecast to be -0.9% in February.   Even though Japan imports nearly all of its energy and prices have soared in the past year, deflation has proved a nearly intractable problem and there is no consideration at the BoJ for higher interest rates.  Japanese Labor Cash Earnings were better than expected at 0.9% in January, giving a modest boost to consumers. Overall Household Spending for January at 6.9% nearly doubled 3.6% forecast. The Eco Watchers Survey for  February that tracks regional economic trends was weaker than predicted in both the current and outlook measures. Economic activity was also slower-than-anticipated in the fourth quarter as GDP came in at 4.6% annualized, below the 5.6% forecast and the third quarter’s 5.4%.  In the US, February CPI at 7.9% cemented Fed policy intentions and the certain prospect of higher inflation may be sufficient to force a reduction in the balance sheet.  The Michigan Consumer Sentiment Index dropped to 59.7 in March, well below its 61.4  estimate and February’s 62.8 reading. It was the lowest result in over a decade and underscores the economic risk as soaring inflation forces consumers to cut back on optional spending to meet bills and necessities. USD/JPY outlook The concatenation of technical and fundamental events favor a higher USD/JPY.  Interest rate policies from the Fed and BoJ are not just opposite in the near-term, but for the foreseeable horizon. That difference will remain regardless if and when the Ukraine war ends. Resistance above 117.00 is weak and depends on levels from four years and more in the past. From November 2014 to February 2016 the USD/JPY ranged from 117.00 to over 125.00, as it did and higher for most of the decade from 1997 to 2007.   If the Ukraine war worsens and a shortage of energy supplies and higher prices puts the global economy in recession, the USD/JPY would prosper from the safety-trade, though less than the US dollar would gain against European competitors. Japan's nationwide CPI figures for February will give no pleasure to the BoJ or change the bank's failed accommodative monetary policies. February's Export and Imports figures will likely show a decline in both categories.   In the US, February Retail Sales on the morning of the Fed decision, will be carefully considered. Markets and the Fed will be particularly sensitive to any sign that inflation is starting to curb consumption. At 70% of GDP, consumer spending is the most crucial aspect of the economic recovery and, by default, of Fed policy.   There are no current scenarios that lend to a stronger Japanese yen.  Japan statistics March 7–March 11 FXStreet US statistics March 7–March 11 FXStreet Japan statistics March 14–March 18 FXStreet US statistics March 14–March 18 FXStreet USD/JPY technical outlook Technical indicators are strongly positive. The break of the four-year top at 116.35 and the follow-through to above 117.00 are clear pointers to an immediately higher range. The MACD (Moving Average...