IC Markets Asia Fundamental Forecast | 10 January 2024
What happened in the US session?
The US trade deficit narrowed to $63.2B in November, a figure that beat market expectations. This narrowing deficit was led by an increase in services surplus while total imports fell – narrow deficits typically signal an improvement in the economy and could provide a short-term boost for the dollar. The dollar index (DXY) rose as high as 102.65 before pulling back towards 102.50 by the end of the US session.
What does it mean for the Asia Session?
Average cash earnings in Japan grew at a meagre 0.2% YoY in November, missing the estimate of 1.5%. The slower rate of earnings growth provides the Bank of Japan the conviction to maintain its ultra-dovish monetary policy stance, providing a strong tailwind for USD/JPY as Asian markets came online – this currency pair was rising strongly towards 145.
The Dollar Index (DXY)
Key news events today
FOMC Member Williams Speaks (8:15 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of New York President John Williams will be speaking about the 2024 economic outlook at an event hosted by RM Friedland and Webster Bank in New York where audience questions are expected. President Williams could sing the same ‘hawkish’ tune as his fellow FOMC members in recent days and any ‘hawkish’ comments could potentially function as a bullish catalyst for the dollar later today.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- 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 to 31 January 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
FOMC Member Williams Speaks (8:15 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of New York President John Williams will be speaking about the 2024 economic outlook at an event hosted by RM Friedland and Webster Bank in New York where audience questions are expected. President Williams could sing the same ‘hawkish’ tune as his fellow FOMC members in recent days and any ‘hawkish’ comments could potentially function as a bullish catalyst for the dollar and thus add downward pressure on this precious metal later today.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
CPI (12:30 am GMT)
What can we expect from AUD today?
Inflation has trended lower for most parts of 2023 in Australia with the monthly CPI reading easing to 4.9% YoY in October. November’s estimate of 4.4% YoY points to further easing which could create potential headwinds for the Aussie.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi traded around 0.6230 overnight and was edging higher as Asian markets came online. This currency has been ranging between 0.6220 and 0.6270 since the start of the year, waiting for a catalyst to drive it beyond these levels.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 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?
Average cash earnings in Japan grew at a meagre 0.2% YoY in November, missing the estimate of 1.5%. The slower rate of earnings growth provides the Bank of Japan the conviction to maintain its ultra-dovish monetary policy stance, providing a strong tailwind for USD/JPY as Asian markets came online – this currency pair was rising strongly towards 145.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, 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 23 January 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro traded around 1.0930 overnight and was sliding lower as Asian markets came online. This currency has been ranging between 1.0890 and 1.0970 since the start of the year, waiting for a catalyst to drive it beyond these levels.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 25 January 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?
Switzerland’s foreign exchange reserves increased for the first time in almost 18 months as its reserves grew to CHF654B in December, up from November’s figure of CHF642B. This increase could point to slower purchasing of the Swiss franc in the open market by the Swiss National Bank, providing some relief from the downward pressure on USD/CHF.
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
Weak Bullish
The Pound (GBP)
Key news events today
BoE Gov Bailey Speaks (2:15 pm GMT)
What can we expect from GBP today?
Bank of England (BoE) Governor Andrew Bailey will be testifying on the Financial Stability Report before the Treasury Select Committee in London. Any comments on inflation, economic growth and/or monetary policy could have a major short-term impact on the Pound at the start of the US session.
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%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons, respectively.
- Next meeting is on 1 February 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?
The Loonie has weakened versus the dollar since the beginning of the year causing USD/CAD to briefly climb above 1.3400 during the US session. However, this currency pair was pulling back at the start of the Asia session, sliding lower towards 1.3370.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
EIA Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
API stockpiles decreased for the second week in a row, with the latest reading showing a fall of 5.2M barrels of crude versus the estimate of a 1.2M drawdown – higher-than-expected draws typically signal increasing demand for crude in the US.
Crude oil prices climbed overnight with WTI oil gaining nearly 2% and could finally climb above $73 per barrel today as the closure of the Sharara oilfield in Libya is disrupting oil supplies. This oilfield is one of Libya’s largest and has been a frequent target for political protests, adding to the ongoing Middle East tensions.
Next 24 Hours Bias
Medium Bullish
