IC Markets Asia Fundamental Forecast | 21 March 2024
What happened in the US session?
As widely anticipated, the Federal Reserve held the Fed Funds rate on hold at 5.25% to 5.50% once again – this marked the fifth consecutive meeting where rates remained unchanged. The latest FOMC statement was quite similar to the one that was released during the January meeting, with the most notable change related to job gains. From “moderated since early last year but remain strong” to just “job gains have remained strong”, highlighting the resilience of the labour market despite higher rates.
Meanwhile, the dot plot – which is the primary forecast tool for monetary policy – seems to suggest a slightly hawkish outlook based on the central tendency projections. However, during his press conference, Chairman Jerome Powell appeared to be unfazed by the monthly acceleration in CPI and PPI for the months of January and February and reiterated the Fed’s forecast of having three 25 basis points rate cuts in 2024.
From the moment the statement was released, the dollar index (DXY) tumbled from 103.90 to as low as 103.38 by the end of Chairman Powell’s conference while spot prices for gold surged on the ‘dovish’ rhetoric, soaring past the threshold of $2,200/oz to hit an overnight high of $2,222.87/oz.
What does it mean for the Asia Session?
As Asian markets digested this latest salvo by the Fed, the DXY stabilized around the region of 103.25 and was edging higher while gold prices pulled back quite sharply to dip under the $2,200/oz-threshold. Although markets are moving in opposite direction to the initial move following the outcome of the FOMC meeting, they could potentially reverse course in the latter half of the day.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
Composite PMI (1:45 pm GMT)
What can we expect from DXY today?
Not only have unemployment claims trended lower since February, most of the results have also printed lower than their respective forecasts which signals a robust labour market. This week’s estimate of 212K hints at a continuation of this downtrend and should claims print lower than this estimate, it could potentially function as a short-term boost for the dollar.
The flash readings for the Composite PMI for the month of March point to another month of expansion for the manufacturing as well as the services sector. Overall output has expanded since early 2023 despite the high interest rate environment. Should the flash readings signal another month of robust growth, it could provide an additional tailwind for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- 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 and 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%.
- 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 April to 1 May 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
Composite PMI (1:45 pm GMT)
What can we expect from Gold today?
Not only have unemployment claims trended lower since February, most of the results have also printed lower than their respective forecasts which signals a robust labour market. This week’s estimate of 212K hints at a continuation of this downtrend and should claims print lower than this estimate, it could potentially function as a short-term boost for the dollar.
The flash readings for the Composite PMI for the month of March point to another month of expansion for the manufacturing as well as the services sector. Overall output has expanded since early 2023 despite the high interest rate environment. Should the flash readings signal another month of robust growth, it could provide an additional tailwind for the dollar. It is bound to be another volatile period for gold prices during the US session.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (12:30 am GMT)
What can we expect from AUD today?
Employment growth in Australia has been mixed over the past four months while the unemployment rate has generally edged higher over the same period. However, the estimates for February point to an overall improvement in the labour market with nearly 40K jobs expected to be added while the unemployment rate edges lower. Should the latest labour force report signal a rebound in employment figures, the Aussie could receive another boost following the ‘dovish’ outcome of the latest FOMC meeting overnight.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the seventh pause out of the last eight board meetings.
- The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace.
- The central forecasts are for inflation to return to the target range of 2–3% in 2025, and to the midpoint in 2026.
- While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 7 May 2024.
Next 24 Hours Bias
Strong Bullish
The Kiwi Dollar (NZD)
Key news events today
GDP (9:45 pm GMT 20th March)
What can we expect from NZD today?
New Zealand’s economy declined 0.1% QoQ in the fourth-quarter of 2023, missing the estimate of a 0.1% GDP growth. Despite a struggling economy, the Kiwi was lifted following a ‘dovish’ rhetoric by Federal Reserve Chairman Jerome Powell as it hit an overnight high of 0.6085 and is likely to remain elevated today.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
National Core CPI (11:30 pm GMT)
What can we expect from JPY today?
Inflation in Japan, particularly the core CPI, has moderated lower since the third quarter of 2023 easing to a growth rate of 2.0% YoY in January – the lowest level since March 2022. However, February’s estimate of 2.8% hints at a re-acceleration of core inflation which is likely to spur another strong rally in the Japanese yen and potentially drive USD/JPY lower.
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its JGB purchases with broadly the same amount as before.
- In addition, the Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) and will also gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, 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 26 April 2024.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
Composite PMI (9:00 am GMT)
What can we expect from EUR today?
The March estimate for the Composite PMI shows overall activity contracting once more in the Eurozone – economic output has been depressed since mid-2023. Should the flash figures print lower than the estimates, this result could cap some of the recent gains seen in the Euro following the outcome of the FOMC meeting overnight.
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
Medium Bullish
The Swiss Franc (CHF)
Key news events today
SNB Monetary Policy Assessment (8:30 am GMT)
SNB Press Conference (9:00 am GMT)
What can we expect from CHF today?
The Swiss National Bank (SNB) is expected to maintain its key policy rate on hold at 1.75% for the third consecutive meeting – no surprises here. SNB Governor Thomas Jordan will then deliver his press conference following the release of the monetary policy statement where traders will be watching out for any additional clues. Should he communicate a ‘dovish’ outlook on future monetary policy action, this current downward slide in USD/CHF could slow during the European session as demand for the Swiss franc may pick up slightly.
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
Medium Bearish
The Pound (GBP)
Key news events today
Composite PMI (9:30 am GMT)
What can we expect from GBP today?
The Composite PMI output returned to expansion in November 2023 as a robust services sector pulled up overall economic activity in the UK. The flash reading for the month of March points to overall activity expanding strongly for the fifth month in a row – this result is likely to provide additional tailwinds for the Pound as GBP/UDS rose above the key threshold of 1.2800 as Asian markets came online.
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
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
A ‘dovish’ press conference by Federal Reserve Chairman Jerome Powell sent USD/CAD crashing overnight. This currency pair dived from 1.3580 to as low as 1.3470 at the beginning of the Asia session, shedding over 100 pips in the process. Overhead pressures remain and USD/CAD is likely to slide lower as the day progresses.
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
Strong Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Following the larger-than-expected drawdown in API stockpiles, the EIA oil inventories also declined strongly as 2.0M barrels of crude were removed from storage – a figure that was double of the estimate of a 0.9M-draw. Although prices for crude oil pulled back yesterday with WTI oil reversing from Tuesday’s high $83.75, this commodity found support around the region of $81.50 per barrel overnight and could edge higher today.
Next 24 Hours Bias
Weak Bullish
