IC Markets Asia Fundamental Forecast | 28 March 2024
What happened in the US session?
Federal Reserve Governor Christopher Waller spoke about monetary policy at the Economic Club of New York where he stated that “while a lot of headway has been made toward our inflation goal in 2023, and the labour market has moved substantially into better balance, the data that we have received so far this year has made me uncertain about the speed of continued progress”. He also added that he came to a conclusion that the Federal Reserve needed time to verify that the progress on inflation that was observed in the second half of 2023 would continue and there was no rush to begin cutting interest rates to normalize the current stance of monetary policy.
Governor Waller also believes that further progress will make it appropriate for the Fed to begin reducing the target range for the federal funds rate this year. However, he is not ready to take that step until that progress materializes. The dollar index (DXY) hit a high of 104.45 overnight before pulling back towards 104.30 but it rebounded up to the high of the US session following the speech.
What does it mean for the Asia Session?
Following a large decline of 2.1% in December, retail sales in Australia rebounded strongly to rise 1.1% MoM in January with segments such as clothing, footwear and personal accessories, and household goods retailing leading the gains. February’s estimate of 0.4% points to a second successive month of higher sales, albeit at a slower rate. Should sales figures surprise to the upside, it could function as a short-term bullish catalyst for the Aussie.
The Dollar Index (DXY)
Key news events today
GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The final estimate for US GDP in the fourth quarter of 2023 is expected to remain unchanged at 3.2% YoY. Compared to the other developed economies, economic growth has been robust despite higher interest rates. Should the final reading print higher than this final estimate, demand for the dollar is likely to pick up.
Meanwhile, unemployment claims continue to signal a resilient labour market in the US. Not only have claims been trending lower in recent weeks, they have also come in lower than their respective estimates and another round of lower claims is certain to give further impetus for the dollar bulls.
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
GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
The final estimate for US GDP in the fourth quarter of 2023 is expected to remain unchanged at 3.2% YoY. Compared to the other developed economies, economic growth has been robust despite higher interest rates. Should the final reading print higher than this final estimate, demand for the dollar is likely to pick up.
Meanwhile, unemployment claims continue to signal a resilient labour market in the US. Not only have claims been trending lower in recent weeks, they have also come in lower than their respective estimates and another round of lower claims is certain to give further impetus for the dollar bulls and potentially create heavy selling pressures for gold.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Retail Sales (12:30 am GMT)
What can we expect from AUD today?
Following a large decline of 2.1% in December, retail sales in Australia rebounded strongly to rise 1.1% MoM in January with segments such as clothing, footwear and personal accessories, and household goods retailing leading the gains. February’s estimate of 0.4% points to a second successive month of higher sales, albeit at a slower rate. Should sales figures surprise to the upside, it could function as a short-term bullish catalyst for the Aussie.
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
Neutral
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi has been ranging between 0.6029 and 0.5989 since the start of the week, waiting for a catalyst to drive it beyond these levels or below them
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
Neutral
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI (11:30 pm GMT)
What can we expect from JPY today?
Tokyo’s core CPI re-accelerated to an annual rate of 2.5% in January from 1.8% in the previous month, raising concerns about inflationary pressures building in the capital. A persistent rise in CPI readings could nudge the Bank of Japan (BoJ) to proceed with a second successive rate hike – a move that is likely to strengthen the Japanese yen. February’s estimate of 2.4% points to a somewhat unchanged figure. However, if the final reading comes in hot, it is likely to trigger strong demand for the yen and potentially cause USD/JPY to tumble later today.
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
Neutral
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro came under selling pressure during the US session, dropping from 1.0839 to dip below 1.0808. As Asian markets came online, the currency pair extended its downward slide, and it is likely to edge lower toward 1.0798.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The USD/CHF currency pair is rising toward 0.908, and it is expected that the price will reverse from this point and fall to 0.8903 before continuing the bullish trend.
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
Medium Bearish
The Pound (GBP)
Key news events today
GDP (7:00 am GMT)
What can we expect from GBP today?
Based on the previous GDP estimate, the UK entered a technical recession in the second half of 2023 as economic activity contracted in the third and fourth quarter. With the final estimate for fourth-quarter GDP remaining unchanged at -0.3% QoQ, there is no doubt about the validity of this technical recession. Should the final result contract more than anticipated, it is all but certain for the Pound to come under heavy selling pressure which would potentially cause GBP/USD to tumble during the European trading hours.
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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
GDP (12:30 pm GMT)
What can we expect from CAD today?
Canada’s economy has grown rather strongly over the last couple of months. The final estimate for January points to a monthly growth rate of 0.4%, following gains of 0.2% and 0.3% in November and December respectively. Should the final figure surprise to the upside, the Loonie could see some short-term demand which would potentially cap the recent rise in USD/CAD.
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
Neutral
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The EIA crude oil inventories also experienced a higher-than-expected inventory build as 3.2M barrels of crude were added to storage, versus the expected decline of 0.7M barrels. This increase in EIA level follows the surprise increase in API stockpiles earlier in the week which typically signals lower demand for oil in the US. Prices for crude oil came under pressure yesterday but rebounded during the US session. WTI oil stabilized around the price range of $80.35 per barrel before rising towards $81.50 as Asian markets came online.
Next 24 Hours Bias
Strong Bullish
