IC Markets Asia Fundamental Forecast | 25 March 2024
What happened in the US session?
After growing strongly for the month of December (rising 0.9% MoM), Canada’s retail sales dropped 0.3% MoM which was slightly better than the estimate of a 0.4%-decline. However, it was not enough as the Loonie weakened in the second half of last week causing USD/CAD to close at 1.3605 gaining nearly 120 pips over this period.
Meanwhile, the dollar index (DXY) broke above the threshold of 104 to close at 104.45 last Friday to gain over 1% or nearly 100 pips – this was the largest weekly gain for the DXY since the first week of January.
What does it mean for the Asia Session?
The DXY opened to edge lower towards 104.30 while prices for spot gold opened around $2,165/oz to rise towards $2,180/oz as Asian markets came online. These respective moves for the DXY and gold could continue as the day progresses but eventually reverse as in the latter half of the day.
The Dollar Index (DXY)
Key news events today
FOMC Member Bostic Speaks (12:25 pm GMT)
New Home Sales (2:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Atlanta President Raphael Bostic will be participating in a panel discussion about equitable economic development at the University of Cincinnati where audience questions are expected. His comments on monetary policy, if any, could inject some volatility into currency markets later today.
Meanwhile, new home sales in the US have been constrained by higher mortgage rates forcing many buyers out of the market. February’s estimate of 675K points to a third consecutive month of steady sales. Should the home sales surprise to the upside and beat market expectations, the dollar could receive a nice boost later today.
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
Weak Bearish
Gold (XAU)
Key news events today
FOMC Member Bostic Speaks (12:25 pm GMT)
New Home Sales (2:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of Atlanta President Raphael Bostic will be participating in a panel discussion about equitable economic development at the University of Cincinnati where audience questions are expected. His comments on monetary policy, if any, could inject some volatility for gold later today.
Meanwhile, new home sales in the US have been constrained by higher mortgage rates forcing many buyers out of the market. February’s estimate of 675K points to a third consecutive month of steady sales. Should the home sales surprise to the upside and beat market expectations, the dollar could receive a nice boost and potential drive gold lower later today.
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?
The Aussie dropped 1.7% over the last couple of weeks as it lost over 110 pips in the process. A primary reason for the weakness was the change in tone and sentiment in the recent monetary policy statement that was released by the Reserve Bank of Australia (RBA). The latest statement signalled a dovish outlook by the central bank which triggered a strong sell-off in the Aussie – this currency pair opened at 0.6510 and was rising towards 0.6550 as Asian markets came online.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi was one of the worst-performing currency pairs over the last couple of weeks as it lost almost 3% shedding 180 over this period. This currency pair opened around 0.5990 to initially slide lower before reversing to climb above the key threshold of 0.6000. Overhead pressures remain for the Kiwi but it could retrace higher 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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Following higher inflation and wage growth in recent data, the Bank of Japan (BoJ) may begin to adopt a more hawkish stance on monetary policy as it ended its negative interest rate regime by raising its key policy rate from 0.1% to 0.1% at last week’s monetary policy meeting. The Japanese yen could strengthen in the coming weeks, especially if inflation and wages continue to increase, putting potential downward pressures on USD/JPY. This currency pair opened at 151.38 this morning before sliding lower towards 151.10.
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
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Stronger demand for the dollar over the last couple of weeks has sent the Euro tumbling from 1.0980 in early March to close at 1.0807 to lose 1.2% or 170 pips in the process. The Euro opened around 1.0809 this morning and was retracing higher towards 1.0820 but overhead pressures remain for this currency pair.
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?
Following the surprise rate cut by the Swiss National Bank (SNB) last week, the Swiss franc has faced strong selling pressures causing USD/CHF to surge past the key threshold of 0.9000 last Friday. However, the move was short-lived as this currency pair reversed to close around 0.8970 – it remains elevated as markets opened this morning and could continue to edge higher.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, going from 1.75% to 1.50% in March.
- For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.
- According to the new forecast, inflation is also likely to remain in this range over the next few years.
- The forecast puts average annual inflation at 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon.
- Swiss GDP growth was moderate in the fourth quarter of last year and it is likely to remain modest in the coming quarters.
- Overall, Switzerland’s GDP is likely to grow by around 1% this year.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Despite the dollar’s strength in recent weeks, the Pound was resilient but that could change after last week’s Bank of England’s (BoE) monetary policy meeting last week. The BoE is likely to switch to a more neutral or even dovish outlook as inflation is projected to fall towards the target of 2% – a move that is likely to put GBP/USD under pressure. This currency pair opened around 1.2590 and climbed above the threshold of 1.2600 – it is likely to edge higher in the initial part of the day.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-to-1 to maintain its Official Bank Rate at 5.25% for the fifth consecutive meeting.
- One member preferred to reduce the Bank Rate by 25 basis points to 5.0%.
- Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December while Services consumer price inflation has declined but remains elevated, at 6.1% in February.
- CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget.
- In the February Report projection, CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2.75%.
- Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year while the fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around 0.25% over coming years.
- Next meeting is on 9 May 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?
After growing strongly for the month of December (rising 0.9% MoM), Canada’s retail sales dropped 0.3% MoM which was slightly better than the estimate of a 0.4%-decline. However, it was not enough as the Loonie weakened in the second half of last week causing USD/CAD to close at 1.3605 gaining nearly 120 pips over this period. This currency pair opened to initially rise as high as 1.3615 before reversing to dip under the 1.3600-threshold.
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
No major news events.
What can we expect from Oil today?
Following news of a potential ceasefire in Gaza last week, crude prices have retreated from their highs of 2024 – a stronger dollar has also weighed on prices. WTI oil hit a high of $83.30 per barrel last Tuesday before sliding below $81.50 by the end of last week. Prices for crude oil could remain under pressure as the new trading week kicks off, especially if the likelihood of a potential ceasefire gains further traction. WTI oil opened at around $81.30 this morning before edging higher towards $82 per barrel.
Next 24 Hours Bias
Weak Bullish
