IC Markets Asia Fundamental Forecast | 30 April 2024
What happened in the US session?
It was a quiet day of trading with no notable economic events during the Europe and US sessions except for inflation data out of Germany. Headline and core inflation has eased significantly in Germany over the past seven months as economic growth remained sluggish over this period, dragged down by the manufacturing sector that has been in contraction since July 2022. April’s result showed inflation coming in soft once again, with the monthly and annualised readings both coming in lower than their respective forecasts. The Euro dropped as low as 1.0690 overnight before retracing higher to climb above 1.0700 by the end of this session.
What does it mean for the Asia Session?
After decreasing sharply last December, Australia’s retail sales have rebounded quite strongly as sales rose 1.1% and 0.3% MoM in January and February, respectively. The forecast of 0.2% points to a third consecutive month of higher sales but at a much slower rate. Should retail surprise to the upside, they could provide a lift for the Aussie today. This currency pair was trading around 0.6560 as Asian markets came online and could climb higher today.
The Dollar Index (DXY)
Key news events today
Employment Cost Index (12:30 pm GMT)
CB Consumer Confidence (2:00 pm GMT)
What can we expect from DXY today?
The employment cost index – which measures the change in compensation for civilian labour by private businesses and government agencies – increased 0.9% QoQ in the last quarter of 2023. This was the softest pace since the second quarter of 2021. The general trend for this index has been moving lower since the beginning of 2022, indicating a potential slowdown in the rate of pay raises. The first quarter estimate of 1.0% in 2024 points to a relatively unchanged reading and should the result miss market expectations, selling pressures for the dollar could increase.
The Consumer Board will also release its survey on consumer confidence for the month of April. With inflation presenting itself to be sticky in the first quarter of this year, rising optimism has been reined in and is anticipated to edge lower as April’s estimate forecasts this index edging lower from 104.7 in March to 104. Similarly, deteriorating consumer confidence could 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 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 Bullish
Gold (XAU)
Key news events today
Employment Cost Index (12:30 pm GMT)
CB Consumer Confidence (2:00 pm GMT)
What can we expect from Gold today?
The employment cost index – which measures the change in compensation for civilian labour by private businesses and government agencies – increased 0.9% QoQ in the last quarter of 2023. This was the softest pace since the second quarter of 2021. The general trend for this index has been moving lower since the beginning of 2022, indicating a potential slowdown in the rate of pay raises. The first quarter estimate of 1.0% in 2024 points to a relatively unchanged reading and should the result miss market expectations, selling pressures for the dollar could increase.
The Consumer Board will also release its survey on consumer confidence for the month of April. With inflation presenting itself to be sticky in the first quarter of this year, rising optimism has been reined in and is anticipated to edge lower as April’s estimate forecasts this index edging lower from 104.7 in March to 104. Similarly, deteriorating consumer confidence could put downward pressure on the dollar and thus potentially lift gold prices.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Retail Sales (1:30 am GMT)
What can we expect from AUD today?
After decreasing sharply last December, Australia’s retail sales have rebounded quite strongly as sales rose 1.1% and 0.3% MoM in January and February, respectively. The forecast of 0.2% points to a third consecutive month of higher sales but at a much slower rate. Should retail surprise to the upside, they could provide a lift for the Aussie today. This currency pair was trading around 0.6560 as Asian markets came online and could climb higher today.
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
Employment Change (10:45 pm GMT)
Unemployment Rate (10:45 pm GMT)
What can we expect from NZD today?
After declining 0.2% in the third quarter of 2023, employment rebounded relatively strongly to grow 0.4% QoQ in the final quarter of last year. The first quarter estimate of 0.3% in 2024 points to a second consecutive period of growth. However, the unemployment rate is anticipated to increase from 4.0% to 4.3% over the same period – unemployment in New Zealand has been rising steadily since the fourth quarter of 2022, climbing from 3.4%. Should we see weak employment figures later today, it is more than likely to create strong headwinds for the Kiwi. This currency pair was trading around 0.59700 at the beginning of the Asia session.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Fears of intervention by the Bank of Japan (BoJ) caused the yen to strengthen significantly yesterday. USD/JPY tumbled as low as 154.52 before retracing higher to climb above 156.50 overnight. This currency pair continues to experience high volatility and although it could continue to edge higher today, traders should watch out for sharp pullbacks that could be triggered by rumours of intervention actions by the BoJ.
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.
- In a quarterly outlook, the committee revised higher CPI prints for FY 2024 to 2.8% from January’s projections of 2.4%, due to the waning effects of higher import prices and fewer government support measures.
- For 2025, the board expects core inflation to hit 1.9%, slightly higher than its earlier estimates of 1.8%, reflecting a recent rise in oil prices.
- Policymakers cut their 2023 GDP growth forecast to 1.3% from 1.8% and for FY 2024, the bank also slashed its GDP outlook to 0.8% from 1.2%, mainly reflecting lower private consumption.
- Next meeting is on 14 June 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT)
What can we expect from EUR today?
The flash readings for headline and core CPI for the Euro Area will be released today. Following yesterday’s ‘soft’ CPI figures out of Germany, inflation for the wider Eurozone is likely to moderate lower which could potentially add downward pressure on the Euro. This currency pair was trading around 1.0710 at the beginning of the Asia session.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 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?
The franc continues to face strong overhead pressures keeping USD/CHF elevated – it hit a high of 0.9152 yesterday before dipping under 0.9100 during the US session. This currency pair continues to range approximately between 0.9080 and 0.9150 and is expected to bounce between these two levels as the day progresses.
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?
The Pound hit an overnight high of 1.2570 as demand for the dollar waned on the first trading day of the new week. This currency pair was sliding towards 1.2550 as Asian markets came online and could drift lower today.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
GDP (12:30 pm GMT)
What can we expect from CAD today?
Canada’s economy grew strongly in January as it expanded 0.6% MoM with services-producing industries leading the gains. The preliminary estimate for February pointed to an increase of 0.4% with increases in mining, quarrying, and oil and gas extraction; manufacturing; and finance and insurance as the biggest growing segments of the economy. Should the final result for February surprise market expectations to the upside, the Loonie could receive a boost and potentially drive USD/CAD lower later today. This currency pair was trading around 1.3670 at the beginning of the Asia session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
China Manufacturing PMI (1:30 am GMT)
API Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
China’s National Bureau of Statistics (NBS) will release its PMI manufacturing report for the month of April this morning. After returning to expansion in March following five consecutive months of contraction, manufacturing expansion is expected to continue in April with a reading of 50.3. Should this report beat market expectations, it could potentially provide a boost for crude oil prices.
Moving over the US inventories, the API will release its update on the latest storage levels later today. Should these stockpiles register a second consecutive week of larger-than-expected drawdowns, there is the possibility of an additional bullish catalyst for this commodity towards the end of the US session.
WTI oil tumbled overnight before finding support around the region of $83 per barrel. Overhead pressures are building and prices for crude oil could pull back further during the Asia and Europe sessions.
Next 24 Hours Bias
Medium Bearish
