Forex outlook for 2025: AUD/USD, NZD/USD, USD/JPY

Introduction: 2024 recap

The forex market in 2024 was shaped by powerful macroeconomic forces, shifting geopolitical tides, and contrasting central bank policies that tested the resilience and adaptability of traders worldwide. Throughout the year, the resilient U.S. economy, the USD's safe-haven status during increased geopolitical tensions, and Trump's election victory bolstered the USD, even as the Federal Reserve commenced interest rate cuts. The Aussie and Kiwi lost ground against the USD reaching a low of 0.6350 and 0.5800 respectively, as the RBA held its policy steady amid persistently high inflation, while the RBNZ aggressively lowered rates to address slowing growth. This divergence in central bank policy saw the AUD/NZD currency pair reach a two-year high above 1.1150. In contrast, USD/JPY soared to multi-decade highs towards 162.00, reflecting the large interest-rate differential which favoured carry-trades due to the Federal Reserve keeping interest rates unchanged until September and the Bank of Japan’s ultra-loose monetary policy.

Key factors influencing forex markets in 2024 included a relatively stronger U.S. economy, which kept U.S. interest rates “higher for longer.” Commodity price fluctuations, particularly those tied to China’s slowing economy, significantly impacted the Aussie and Kiwi. Geopolitical tensions in Russia/Ukraine and the Middle East also heightened global risk sentiment, reinforcing the USD’s role as a safe-haven asset. The year ended with a stronger tone for the USD, driven by the so-called "Trump trades." As expected, Trump's policies were seen as expansionary, with the potential to keep inflation elevated, supporting a bullish USD outlook.

2025 analysis: Key factors to watch

AUD/USD: Balancing growth with commodity dependencies

The Aussie’s performance in 2025 will likely be shaped by several critical factors, with its heavy dependence on commodity exports playing a central role. Iron ore, a key driver of Australia's trade, ties the AUD closely to China's economic performance. Should China's economy rebound or Beijing implement substantial stimulus measures, the AUD could gain support.

On the macroeconomic front, the RBA is expected to begin rate cuts by mid-2025, if inflation falls further. This shift could weaken the AUD, especially if the Federal Reserve moderates its rate-cutting pace. Additionally, geopolitical risks, such as escalating U.S.-China tensions, could have an indirect impact on Australia’s trade flows and currency.

The upside potential for the AUD includes a recovery in global commodity markets, along with increased investment in renewable energy projects, which could boost Australia's economic outlook. However, risks such as prolonged weakness in China’s economy or adverse weather conditions affecting agriculture and mining sectors could put pressure on the currency.

AUD/USD saw a 0.6350/0.6950 range in 2024. A breakout above 0.6950 could signal a bullish trend, while sustained weakness below 0.6350 would likely indicate bearish sentiment.

Image: A view of the People's Bank of China in Beijing, August 12, 2024.

NZD/USD: Facing challenges from export dependencies

New Zealand’s economy remains deeply tied to its dairy exports and agricultural commodities, making the NZD sensitive to global demand fluctuations. 

The RBNZ is expected to continue its easing cycle in response to domestic economic challenges, which could put further downward pressure on the NZD. Slower growth in China, New Zealand’s largest trading partner, poses a significant risk to the currency. Upside potential for NZD/USD includes surging global demand for agricultural products and a possible weakening of the USD if the Federal Reserve adopts a more aggressive approach to its rate cuts. Conversely, risks to the Kiwi include reduced global export demand and heightened geopolitical tensions in the Asia-Pacific region. NZD/USD saw a 0.5700/0.6400 range in 2024. A breakout above 0.6400 could signal a bullish trend, while sustained weakness below 0.5700 would likely indicate bearish sentiment.

USD/JPY: Pro-growth policies and diverging central bank policies

The USD/JPY pair in 2025 will likely be influenced by a sharp contrast in monetary policies between the Federal Reserve and the Bank of Japan (BoJ), along with the pro-growth economic policies expected from the U.S. under Trump. The Fed’s pace of easing may slow or even pause, as the U.S. economy is expected to benefit from Trump's pro-growth policies, including potential tax cuts, infrastructure spending, and a more protectionist trade approach. These measures could support inflation and economic expansion, providing a strong backdrop for the USD.

In contrast, the BoJ’s ultra-loose monetary policy, despite rising domestic inflation, could continue to put downward pressure on the yen. The BoJ’s reluctance to tighten, coupled with Japan’s low interest rates, will likely keep the yen weak in comparison to the USD, especially with the large interest-rate differential between the two economies. USD/JPY saw a 139.50/162.00 range in 2024. A breakout above 162.00 could signal a bullish trend, while sustained weakness below 139.50 would likely indicate bearish sentiment.

Final word

The forex market in 2025 will likely be shaped by macroeconomic trends, geopolitical factors, and President Trump’s pro-growth policies, including tax cuts, infrastructure spending, and a protectionist trade approach. AUD/USD and NZD/USD will face challenges from global growth slowdown and commodity dependencies, but opportunities could emerge from China’s recovery and sector diversification. The USD/JPY pair will be influenced by the policy divergence between the Federal Reserve and the Bank of Japan, as well as the USD’s safe-haven status. As always traders need to monitor central bank policies, economic indicators, and geopolitical risks throughout the year.

By Carlo Pruscino

With over 25 years of industry expertise, Carlo is a seasoned Forex professional. He offers premium clients insights on executing trades and analysing markets. Prior to joining CMC, he advised Global Hedge Funds, Central Banks, and Australian Corporations on FX and Interest Rate hedging strategies.

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