IC Markets Asia Fundamental Forecast | 13 March 2024
What happened in the US session?
Inflation in the US surprised to the upside as core CPI rose more than anticipated on a monthly and annual basis while the headline CPI also increased more than its estimate on an annualised basis. Inflation is looking to be stubbornly sticky, especially for core CPI, injecting high volatility into markets. The dollar index (DXY) swung wildly upon the release of this economic data point, dropping as low as 102.73 before surging as high as 103.17 while spot prices for gold spiked towards $2,185/oz before reversing to plunge under $2,155/oz.
What does it mean for the Asia Session?
As Asian markets digest the hotter-than-expected inflation data out of the US, the DXY dipped under 103 while gold retraced higher towards $2,160/oz but both these securities are likely to resume their overnight trend as the day progresses.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The DXY swung wildly upon the release of CPI overnight, dropping as low as 102.73 before surging towards 103.20. However, it dipped under 103 as Asian markets came online but is likely to resume the upturn as the day progresses.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fourth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- 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. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- 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 19 to 20 March 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Spot prices for gold spiked towards $2,185/oz before reversing to plunge under $2,155/oz overnight. However, this precious metal retraced higher towards $2,160/oz at the beginning of the Asia session but overhead pressures remain and the downturn could resume once more.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Following the release of the US CPI data overnight, the Aussie dived towards 0.6580 before retracing higher as Asian markets came online. However, overhead pressures are likely to remain and the downtrend could resume in the latter part of the day.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi plunged under 0.6140 following the release of the US CPI data overnight before retracing higher at the beginning of the Asia session. However, overhead pressures are likely to remain and the downturn could resume in the latter part of the day.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Demand for the dollar spiked following the release of the US CPI data causing USD/JPY to surge past 148 but the move was not sustained. This currency pair pulled back to dip under this level by the end of the US session and it fell under 147.50 as Asian markets came online. Despite higher inflation out of the US, the Japanese yen has shown resilience and continues to strengthen.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: 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 are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- 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 19 March 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
Industrial Production (10:00 am GMT)
What can we expect from EUR today?
Industrial production in the Eurozone grew strongly for the month of December as it rose 2.6% to register the largest monthly gain since August 2022. However, January’s production output is now expected to decline 1.8% MoM. Should production figures disappoint and decline more than originally anticipated, the Euro could come under selling pressure, especially after yesterday’s hot inflation print out of the US.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Demand for the dollar spiked following the release of the US CPI data causing USD/CHF to surge past 0.8790, coming within a whisker of the 0.8800-threshold. However, this currency pair pulled back towards 0.8770 by the end of the US session but it could resume the upturn and grind higher as the day progresses.
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
GDP (7:00 am GMT)
What can we expect from GBP today?
GDP growth in the UK has been mixed over the past ten months with economic activity falling 0.1% MoM. January’s estimate points to an uptick in growth and should the result print higher than 0.2%, it could provide lift for the Pound.
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% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 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 spiked following the release of the US CPI data causing USD/CAD to surge past 1.3520. However, this currency pair dipped under 1.3500 by the end of the US session but it could resume the upturn and grind higher as the day progresses.
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 Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API stockpiles bucked this trend last week by reporting a surprise draw of 5.5M barrels of crude oil versus the estimate of a 0.4M-build. This higher-than-anticipated draw provided a boost for crude oil prices as WTI bounced from $77.50 to $78.70 per barrel during the US session. However, the rebound was short-lived as prices fell under $78 but managed to climb above this level once more as Asian markets came online. Should the EIA inventories also report a higher-than-expected draw later today, oil prices could receive another jolt.
Next 24 Hours Bias
Weak Bullish
