IC Markets Asia Fundamental Forecast | 2 January 2024
What happened in the US session?
After a surprise surge in November, the Chicago PMI missed analyst expectations of 50.1 and fell to 46.9 in December. This decline was the largest monthly drop in three and a half years with components such as new orders, employment and production growth leading the contraction in business activity. As expected on the final trading day of 2023, the dollar index (DXY) traded with a narrow range between 101.10 and 101.40.
What does it mean for the Asia Session?
The DXY was trading around 101.40 at the beginning of the Asia session while spot gold prices edged higher towards $2,070/oz. Meanwhile, crude oil prices were rising strongly with WTI oil surging towards the $73 per barrel threshold.
The Dollar Index (DXY)
Key news events today
Manufacturing PMI (2:00 pm GMT)
What can we expect from DXY today?
The S&P Global flash US Manufacturing PMI fell to 48.2 for the month of December signaled a sharper deterioration in operating conditions as output, new orders and employment all contracted. The final estimate of 48.4 points to a second consecutive month of contraction for the manufacturing sector and a weaker-than-expected reading could add to more misery for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 30 to 31 January 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Manufacturing PMI (2:00 pm GMT)
What can we expect from Gold today?
The S&P Global flash US Manufacturing PMI fell to 48.2 for the month of December signaled a sharper deterioration in operating conditions as output, new orders and employment all contracted. The final estimate of 48.4 points to a second consecutive month of contraction for the manufacturing sector and a weaker-than-expected reading could add to more misery for the dollar which could potentially lift gold prices higher.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie climbed as high as 0.6820 at today’s open before pulling back slightly. This currency is likely to remain elevated today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi rose as high as 0.6320 at today’s open before pulling back slightly. Just like its Pacific neighbour, this currency is likely to remain elevated today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen gained significantly versus the dollar last week but USD/JPY opened strongly at today’s open to climb as high as 141.40. This currency pair is likely to retrace higher as the day progresses.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 23 January 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Manufacturing PMI (9:00 am GMT)
What can we expect from EUR today?
Manufacturing activity in the Eurozone has contracted for the past 16 months straight. December’s flash reading of 44.2 marks another month of deterioration for this sector as output and backlogs of work both fell, with the latter experiencing a steeper decline. Should the final PMI figure print lower than the flash reading, it could halt the recent rise in the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 25 January 2024.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The recent strength of the Swiss franc has caused USD/CHF to dive as low as 0.8330 last week. However, this currency pair retraced higher at the beginning of the Asia session. It is likely to edge higher before resuming the downtrend.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
Manufacturing PMI (9:30 am GMT)
What can we expect from GBP today?
Manufacturing activity in the UK has contracted for 15 months straight and December’s flash reading of 46.4 makes it 16 as output and production both declined, with the former at a much faster rate. Should the final PMI figure print lower than the flash reading, it could halt the recent rise in the Pound.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons respectively.
- Next meeting is on 1 February 2024.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
Manufacturing PMI (2:30 pm GMT)
What can we expect from CAD today?
Canada’s manufacturing sector has contracted for seven months straight as both output and new orders declined while sales experienced the sharpest reduction since August 2022. In addition, export orders and purchasing activity decreased further. A weaker-than-expected reading could add to more misery for the Loonie and potentially prop up USD/CAD during the US session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
Caixin Manufacturing PMI (1:45 am GMT)
What can we expect from Oil today?
The Caixin Manufacturing PMI rose to 50.7 in November which was the highest reading since August with both output and buying levels returning to growth. New orders – which indicate future demand – rose the most in four months while the rate of job shedding also eased. Should manufacturing activity expand strongly for the second straight month, it could provide a much-needed tailwind for crude oil prices.
Next 24 Hours Bias
Medium Bullish
