Japan recently released its initial GDP data for Q1, showing a -0.7% annualized drop compared to the previous quarter. This marks the first decline in a year and highlights difficulties in the economic recovery. Exports fell, even as global demand rose due to U.S. tariffs. After the GDP data came out, the yen strengthened. The GDP deflator, which indicates inflation, rose by 3.3% year-on-year. The USD/JPY currency pair dipped to around 145.00 but later bounced back to over 145.40, settling near 145.30. In New Zealand, the Reserve Bank published its Q2 inflation expectations survey. It revealed that inflation expectations for both the one-year and two-year periods increased, leading to a rise in the NZD/USD from about 0.5865 to above 0.5900. Meanwhile, the U.S. dollar weakened slightly against several currencies, including the euro, Australian dollar, British pound, and Canadian dollar. Gold prices also fell, dropping below USD 3210. Japan’s preliminary GDP figures show an annualized output decrease of 0.7% compared to the last three months, the first decline in a year. This downturn reflects waning demand both in Japan and globally, particularly in exports. This decline is notable since it happened even with global trends that usually support exports, especially given U.S. tariffs meant to shift trade flows. However, these factors didn’t help Japan’s export levels. Following the GDP release, the yen gained strength, which makes sense since the GDP deflator increased by 3.3% year-on-year. This indicates rising price pressures. Although Japan’s economic output shrank, inflation is still persistent. The USD/JPY pair initially fell toward 145.00 but later recovered above 145.40, settling slightly lower in that range, suggesting indecision from traders. In New Zealand, the latest survey hints at a small boost for the local currency. The Reserve Bank of New Zealand’s findings showed that inflation expectations for both short and medium terms have risen. This uplift for the NZD took it from about 0.5865 to just over 0.5900. Such surveys affect how central banks think — higher expectations may lead to prolonged interest rate increases. Meanwhile, the U.S. dollar slightly weakened against major currencies, including the euro, Australian dollar, British pound, and Canadian dollar. This gradual decline suggests a lack of strong buying interest for the dollar, possibly due to mixed data or positioning before upcoming events. In a different sector, gold prices fell under the USD 3210 mark. This movement seems more driven by market flows rather than specific data changes. Price drops like this can occur when traders rebalance their positions. Looking ahead, several factors are essential to monitor. For the yen, price movements have reacted more to inflation than economic growth. Divergence in policies between Japan and the U.S. remains significant. While Tokyo may be hesitant to tighten policy despite rising prices, any shifts from the U.S. Federal Reserve could influence this currency pair. Currently, the spot levels around 145.00–145.40 are being tested, and if economic growth continues to disappoint while the deflator rises, speculation about policy changes could arise. Regarding the kiwi, increased inflation expectations might spark renewed interest in rate hikes. As a result, volatility may increase, primarily if the currency continues to respond more to expectations than to hard data. This situation leaves room for potential overreactions. Therefore, a tactical approach, such as placing tighter stops or splitting trades during uncertain times, could be beneficial. As for the broader dollar weaknesses, movements appear cautious without strong thematic drivers, influenced more by specific currency factors. The outlook remains heavily reliant on upcoming U.S. data—especially inflation, labor, and spending reports. Surprises in these areas could quickly boost the dollar, so it’s important to stay alert regarding dollar-denominated assets. Regarding gold, the drop below USD 3210 could lead to further momentum trades if risk appetite increases in equities or if bond markets stabilize. However, it acts as a gauge: if investors expect interest rates to remain high, gold prices may suffer; if not, they could recover. In summary, inflation trends, central bank policies, and risk appetite are crucial to watch. Directional trades in these markets are likely to be brief unless stronger macro signals emerge. Flexibility in strategy is essential; pullbacks may be met with buying pressure, while rallies could face resistance.

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