IC Markets Asia Fundamental Forecast | 12 March 2024
What happened in the US session?
With no major news overnight, the dollar index (DXY) retraced higher to climb as high as 102.93 before pullin back slightly to end the session at 102.85 while gold remained elevated with spot prices hovering around $2,185/oz. Meanwhile, prices for crude oil rebounded overnight with WTI oil bouncing from $76.50 per barrel to as high as $78.
What does it mean for the Asia Session?
After briefly climbing above $78 per barrel overnight, crude oil prices pulled back towards the end of the US session before resuming the ascent – WTI oil dipped under $77.50 prior to continuing climbing towards the $78-level. Prices for this commodity are expected to be buoyed today.
The Dollar Index (DXY)
Key news events today
CPI (12:30 pm GMT)
What can we expect from DXY today?
On a monthly basis, inflation in the US rose more than anticipated for the month of January which functioned as a near-term bullish catalyst for the dollar in mid-February. Should February’s headline and core CPI readings both come in hot once more, it is all but certain to inject high demand for the dollar and potentially cause DXY to surge later today.
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 Bearish
Gold (XAU)
Key news events today
CPI (12:30 pm GMT)
What can we expect from Gold today?
On a monthly basis, inflation in the US rose more than anticipated for the month of January which functioned as a near-term bullish catalyst for the dollar in mid-February. Should February’s headline and core CPI readings both come in hot once more, it is all but certain to inject high demand for the dollar and potentially cause DXY to surge later today and finally put some downward pressure on gold.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Trading for the Aussie was relatively subdued with no clear direction yesterday. This currency was edging higher towards 0.6620 as Asian markets came online but could come under pressure during the US session should US CPI come in hot.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi traded within a relatively narrow range of 0.6160 and 0.6180 overnight. This currency could continue trading within this range for most parts of today until the US CPI hits the news wires during the US session.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen has strengthened quite significantly since the beginning of March causing USD/JPY to fall from its peak of 150.88. This currency pair hit a low of 146.50 overnight but found support around this region before retracing higher to climb towards 147.50 at the beginning of the Asia session. Should the US CPI surprise markets to the upside, this data could drive USD/JPY higher during the US session.
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 Bearish
The Euro (EUR)
Key news events today
Germany CPI (7:00 am GMT)
What can we expect from EUR today?
Although inflation in Germany has eased significantly on an annualised basis with February’s reading edging lower to 2.5% YoY, the monthly figures have been rising since last December. February’s preliminary data showed inflation rising strongly, increasing by 0.4% MoM which was the highest reading since April 2023. The final figure is likely to confirm this strong monthly gain in prices which could provide a short-term boost for the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fourth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Since the last Governing Council meeting in January, inflation has declined further while the latest ECB staff projections show inflation has been revised down, in particular for 2024, which mainly reflects a lower contribution from energy prices.
- The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages.
- Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in the near term.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
- Next meeting is on 11 April 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Despite demand for the dollar waning in recent weeks, USD/CHF has remained above the key threshold of 0.8700. This currency pair could edge lower as the day progresses but a hot US CPI print could jolt it higher during the US session.
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
Labour Force Survey (7:00 am GMT)
What can we expect from GBP today?
The UK will release its labour force survey for the month of February which is likely to show the claimant count change (claims for unemployment) increasing for the month of February while the average earnings index is expected to edge lower from 5.8% to 5.7% for the month of January. Meanwhile, the unemployment rate looks set to remain unchanged at 3.8%. The Pound could come under selling pressure should the claimant count come in higher than the forecast while the average earnings also print lower – this would indicate a potential softness in the UK’s labour market.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
With prices for crude oil rebounding overnight, demand for the Canadian also picked up causing USD/CAD to come under pressure. This currency pair hit a high of 1.3510 before reversing and slid under 1.3480 as Asian markets came online.
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 grew in the fourth quarter by more than expected, although the pace remained weak and below potential.
- CPI inflation eased to 2.9% in January as goods price inflation moderated further but shelter price inflation remains elevated and is the biggest contributor to inflation.
- Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3.0% to 3.5% range, and the share of CPI components growing above 3.0% declined but is still above the historical average. The Bank continues to expect inflation to remain close to 3.0% during the first half of this year before gradually easing.
- 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 Bearish
Oil
Key news events today
API Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Following three weeks of larger-than-expected builds, the API stockpiles bucked this trend last week by reporting an increase of just 0.4M barrels of crude oil versus the estimate of a 2.6M-gain. Should this week’s reading point to a slower build or perhaps even an unexpected drawdown, it could function as a short-term boost for crude prices. WTI oil rebounded overnight bouncing from $76.50 per barrel to as high as $78 – prices could remain buoyed today.
Next 24 Hours Bias
Weak Bullish
