IC Markets Asia Fundamental Forecast | 16 February 2024
What happened in the US session?
US retail sales disappointed market expectations by declining 0.8% MoM in January – a figure that was much worse than the estimate of a 0.2%-drop. This was the largest decrease in sales since March 2023 and was led by segments such as building materials and garden equipment, miscellaneous store retailers, gasoline stations, and motor vehicles and parts. The dollar index (DXY) dropped in the aftermath of this news release, falling from 104.55 to as low as 104.20.
Meanwhile, unemployment claims printed at 212K which was lower than the estimate of 219k and also lower than the previous week’s reading. Lower claims generally indicate a resilient labour market but this data point was overshadowed by January’s largely underwhelming retail sales.
What does it mean for the Asia Session?
The DXY found support around 104.30 at the beginning of this session to retrace slightly higher. It could continue to edge upwards momentarily before resuming the downward trend. Spot gold prices climbed past the key threshold of $2,000/oz overnight as the dollar sold off while crude oil prices also rebounded strongly with WTI oil breaking above $78 per barrel – crude prices could remain elevated today.
The Dollar Index (DXY)
Key news events today
PPI (1:30 pm GMT)
UoM Consumer Sentiment (3:00 pm GMT)
What can we expect from DXY today?
The Producer Price Index (PPI) – which measures wholesale inflation – is expected to show a continued slowdown of prices in this sector. The estimates for January show readings for both headline and core PPI easing further on an annualised basis which is likely to cap the recent gains in the dollar.
Meanwhile, the University of Michigan (UoM) will release its preliminary findings on consumer sentiment for the month of February where consumer sentiment is expected to edge higher. The year-ahead inflation expectations component of this report will also be closely watched and should it continue to moderate lower, it could also potentially put downward pressure on the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fourth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- 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 19 to 20 March 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
PPI (1:30 pm GMT)
UoM Consumer Sentiment (3:00 pm GMT)
What can we expect from Gold today?
The Producer Price Index (PPI) – which measures wholesale inflation – is expected to show a continued slowdown of prices in this sector. The estimates for January show readings for both headline and core PPI easing further on an annualised basis which is likely to cap the recent gains in the dollar and lift gold prices.
Meanwhile, the University of Michigan (UoM) will release its preliminary findings on consumer sentiment for the month of February where consumer sentiment is expected to edge higher. The year-ahead inflation expectations component of this report will also be closely watched and should it continue to moderate lower, it could also potentially put downward pressure on the dollar and boost this precious metal.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Following yesterday’s disappointing retail sales in the US, the Aussie hit an overnight high of 0.6530 before pulling back as Asian markets came online. Despite demand for the dollar waning, the Aussie could slide lower in the initial part of the day before resuming the uptrend.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
RBNZ Governor Adrian Orr delivered his speech at the New Zealand Economics Forum where he stated that “policymakers still need to ensure that inflation expectations are contained, suggesting they won’t be signaling a pivot to interest-rate cuts anytime soon”. Although inflation is heading in the right direction, Governor Orr said “We’ve got more work to do to have inflation expectations truly anchored at that 2% level. This is the part where capacity pressures and inflation expectations are the monetary committee’s real focus.” In short, the speech communicated a hawkish tone and could provide a boost for the Kiwi 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?
Demand for the dollar diminished overnight as poor retail sales in the US caused USD/JPY to fall towards 149.50. However, this currency pair found support around 149.80 to rebound and climb above 150 at the beginning of the Asia session but overhead pressures remain and USD/JPY could resume the downturn in the latter part of the day.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: 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 are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- 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 19 March 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Following yesterday’s disappointing retail sales in the US, the Euro hit an overnight high of 1.0785 before pulling back as Asian markets came online. Despite demand for the dollar waning, the Euro could slide lower in the initial part of the day before resuming the uptrend.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight 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 7 March 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?
Demand for the dollar diminished overnight as poor retail sales in the US caused USD/CHF to tumble as low as 0.8783. However, this currency pair found support around 0.8800 at the beginning of the Asia session but overhead pressures remain and USD/CHF could resume the downturn in the latter part of the day.
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 Bullish
The Pound (GBP)
Key news events today
Retail Sales (7:00 am GMT)
What can we expect from GBP today?
Retail sales in the UK tumbled 3.2% MoM in December which marked the largest monthly decline since January 2021. December’s estimate points to a growth of 1.5% – this would register as the biggest gain since April 2021. Sales have been mixed throughout 2023 and this trend looks set to continue. Should figures print higher than the estimate, it is likely to function as a short-term bullish catalyst for 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% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Demand for the dollar diminished overnight as poor retail sales in the US caused USD/CAD to tumble as low as 1.3450. However, this currency pair found support around 1.3460 at the beginning of the Asia session but overhead pressures remain and USD/CAD could resume the downturn in the latter part of the day.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fourth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- The Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation, and wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Next meeting is on 10 April 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices rose strongly overnight with WTI oil jumping nearly 2% to break above $78 per barrel. Disappointing retail sales in the US triggered a sell-off in the dollar which boosted oil prices. However, a report by the International Energy Agency (IEA) flagged slowing demand growth for crude this year capped the overnight gains but this commodity is expected to remain elevated today to register a second consecutive week of positive returns.
Next 24 Hours Bias
Weak Bearish
