IC Markets Asia Fundamental Forecast | 23 May 2024
What happened in the US session?
The minutes for the FOMC meeting that concluded on 1st May were released overnight which showed concerns about the progress on inflation by the Federal Reserve. Policymakers noted that “recent data had not increased their confidence in progress toward 2% and, accordingly, had suggested that the disinflation process would likely take longer than previously thought”. The most recent CPI reading for the month of April showed consumer inflation had slowed more than expected.
While Fed members have welcomed the slower pace of inflation, they continue to stress further data would be needed to be sure that inflation had resumed its downward trend once again. “I need to see a few more months of inflation data that looks like it is coming down,” said Cleveland Fed President Loretta Mester earlier this week, as her comments echoed recent remarks from other Fed members including Boston Fed President Susan Collins and Governor Christopher Waller. The dollar index (DXY) was trading around 104.75 prior to the release of the minutes but rose strongly to hit an overnight high of 104.97.
What does it mean for the Asia Session?
Retail sales in New Zealand have declined for eight consecutive quarters, beginning in the first quarter of 2022. Sales tumbled 1.9% QoQ in the fourth quarter of last year to mark the largest drop since the second quarter of 2022, as 14 of the 15 retail industries registered lower sales volumes with motor vehicle and parts, food and beverage services, and fuel leading the decline. The forecast of a 0.3% decline points to a ninth straight quarter of weaker sales. Should the final result come in lower than anticipated, it is likely to create strong near-term headwinds for the Kiwi.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
S&P Global Composite PMI (1:45 pm GMT)
What can we expect from DXY today?
Unemployment claims have printed higher than their respective forecasts of the last couple of weeks. The 4-week average for claims currently stands at 217K while the estimate for this week is 221K. Should the result once again come in higher than its estimate, not only would it mark the third consecutive week of higher-than-anticipated claims, the figures would also be higher than its 4-week average. Higher claims signal potential cracks in the labour market and could potentially function as a short-term bearish catalyst for the dollar.
S&P Global will release its flash composite PMI report for the month of May where overall activity is likely to show another month of expansion, albeit at a slower rate. Should PMI output surprise to the upside, it could provide a lift for the greenback.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the sixth 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 have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been a lack of further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- The Committee’s assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 11 to 12 June 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
S&P Global Composite PMI (1:45 pm GMT)
What can we expect from Gold today?
Unemployment claims have printed higher than their respective forecasts of the last couple of weeks. The 4-week average for claims currently stands at 217K while the estimate for this week is 221K. Should the result once again come in higher than its estimate, not only would it mark the third consecutive week of higher-than-anticipated claims, the figures would also be higher than its 4-week average. Higher claims signal potential cracks in the labour market and could potentially function as a short-term bearish catalyst for the dollar.
S&P Global will release its flash composite PMI report for the month of May where overall activity is likely to show another month of expansion, albeit at a slower rate. Should PMI output surprise to the upside, it could provide a lift for the greenback. In short, it could be a volatile period for gold later today.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
S&P Global Composite PMI (11:00 pm GMT 21st May)
What can we expect from AUD today?
The flash composite PMI report for the month of May is likely to signal a fourth consecutive month of robust expansion. PMI activity has accelerated in the first quarter of this year and should this momentum continue in May, the Aussie could receive a boost this morning.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the eighth pause out of the last nine board meetings.
- The CPI grew by 3.6% over the year to the March quarter, down from 4.1% cent over the year to December. Underlying inflation was higher than headline inflation and declined by less – this was due in large part to services inflation, which remains high and is moderating only gradually.
- The central forecasts, based on the assumption that the cash rate follows market expectations, are for inflation to return to the target range of 2 to 3% in the second half of 2025, and to the midpoint in 2026.
- In the near term, inflation is forecast to be higher because of the recent rise in domestic petrol prices, and higher than expected services price inflation, which is now forecast to decline more slowly over the rest of the year.
- Inflation is, however, expected to decline over 2025 and 2026.
- 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 18 June 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
Retail Sales (10:45 pm GMT 22nd May)
What can we expect from NZD today?
Retail sales in New Zealand have declined for eight consecutive quarters, beginning in the first quarter of 2022. Sales tumbled 1.9% QoQ in the fourth quarter of last year to mark the largest drop since the second quarter of 2022, as 14 of the 15 retail industries registered lower sales volumes with motor vehicle and parts, food and beverage services, and fuel leading the decline. The forecast of a 0.3% decline points to a ninth straight quarter of weaker sales. Should the final result come in lower than anticipated, it is likely to create strong near-term headwinds for the Kiwi.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the seventh meeting in a row and agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual headline CPI inflation returns to the 1 to 3% target range.
- Restrictive monetary policy is contributing to an easing in capacity pressures while headline inflation, core inflation, and most measures of inflation expectations are continuing to decline. However, domestic inflation has fallen more slowly than expected and headline CPI inflation remains above the Committee’s target band.
- Higher dwelling rents, insurance costs, council rates, and other domestic services price inflation have resulted in a slow decline in domestic inflation, posing a risk to inflation expectations.
- GDP declined by 0.1% in the December 2023 quarter with economic growth having now been negative for four of the past five quarters. High interest rates have reduced household spending, as well as residential and business investment, despite very strong population growth. Recent indicators of economic activity have been weak, as expected.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
S&P Global Composite PMI (12:30 am GMT)
What can we expect from JPY today?
The flash composite PMI report for the month of May could continue to show another month of steady expansion. Overall activity has rebounded in the first quarter of this year and should the flash report surprise markets to the upside, demand for the yen could pick up which would put downward pressure on USD/JPY.
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 Bearish
The Euro (EUR)
Key news events today
S&P Global Composite PMI (8:00 am GMT)
What can we expect from EUR today?
The Euro Area’s PMI activity has staged a solid rebound in the first quarter of 2024 and the flash estimates point to a third successive month of higher output. Should the result print higher than the estimate, it could provide a boost for the Euro.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Demand for the dollar picked up strongly following the release of the FOMC meeting causing USD/CHF to hit a session high of 0.9158. This currency pair was trading around 0.9150 as Asian markets came online and it is expected to remain elevated – these are the support and resistance levels for today.
Support: 0.9100
Resistance: 0.9210
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 Bearish
The Pound (GBP)
Key news events today
S&P Global Composite PMI (8:30 am GMT)
What can we expect from GBP today?
After rebounding strongly in the fourth quarter of 2023, PMI activity in the UK has continued to expand at a robust pace. Another month of solid PMI output is likely to provide a short-term boost for the Cable.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the sixth consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 3.2% in March from 3.4% in February and is expected to return to close to the 2% target in the near term, but increase slightly in the second half of this year to around 2.5% owing to the unwinding of energy-related base effects.
- CPI inflation is projected to be 1.9% in two years’ time and 1.6% in three years in the May Report. With respect to indicators of inflation persistence, services consumer price inflation has declined but remains elevated at 6% in March.
- Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2, stronger than expected in the February Report. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably and will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 20 June 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?
Demand for the dollar jumped strongly following the release of the FOMC meeting causing USD/CAD to come within a whisker of breaching the threshold of 1.3700. This currency pair was trading around 1.3690 at the beginning of the Asia session and could continue to edge higher today – these are the support and resistance levels for today.
Support: 1.3650
Resistance: 1.3730
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 Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil extended its downward slide following a surprise build in EIA crude oil inventories as 1.8M barrels of crude were added versus the estimate of a 2.4M drawdown. WTI oil dropped under the $78-mark and should drift lower as the day progresses – it was trading around $77.70 per barrel as Asian markets came online.
Next 24 Hours Bias
Weak Bullish
