IC Markets Asia Fundamental Forecast | 14 February 2024
What happened in the US session?
Inflation in the US had eased significantly throughout 2023 but January’s CPI print showed a return of inflationary pressures in the US. Both the headline and core readings increased on a monthly basis, rising 0.3% and 0.4% respectively MoM while the headline eased to 3.1% and the core remained unchanged at 3.9% on an annualised basis. It is also important to note that all results came in higher than their respective estimates. In short, it was a hot inflation print that created a huge demand for the dollar triggering a big spike in the dollar index (DXY) to jump as high as 104.96 while spot gold prices plummeted under the key threshold of $2,000/oz overnight.
What does it mean for the Asia Session?
As Asian traders digest the latest CPI news from the US, the DXY pulled back slightly towards 104.80 while spot gold prices hovered around $1,990/oz. Hotter-than-expected CPI ignited concerns of a potential reacceleration in inflationary pressures which is more than likely to cause the Federal Reserve to delay any potential rate cuts in March. Any future cuts are now expected to be pushed back to May or maybe even as late as June should inflation remain stubbornly persistent over the next few months.
The Dollar Index (DXY)
Key news events today
FOMC Member Barr Speaks (9:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Governor Michael Barr is due to participate in a moderated discussion titled “A View from the Federal Reserve Board of Governors” at the Annual National Association for Business Economics Economic Policy Conference in Washington DC where audience questions are expected. Following yesterday’s hotter-than-expected inflation print, any potential hawkish remarks or statements are likely to boost the dollar once more.
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
Strong Bullish
Gold (XAU)
Key news events today
FOMC Member Barr Speaks (9:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Governor Michael Barr is due to participate in a moderated discussion titled “A View from the Federal Reserve Board of Governors” at the Annual National Association for Business Economics Economic Policy Conference in Washington DC where audience questions are expected. Following yesterday’s hotter-than-expected inflation print, any potential hawkish remarks or statements are likely to boost the dollar and drive gold lower once more.
Next 24 Hours Bias
Strong Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Following the hotter-than-expected CPI data in the US overnight, the Aussie plunged as low as 0.6442 before retracing slightly higher towards 0.6460 at the beginning of the Asia session. Overhead pressures remain for this currency and it is likely to slide lower as the day progresses.
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
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi nosedived following the hotter-than-expected CPI data in the US overnight, dropping as low as 0.6050 before retracing slightly higher towards 0.6065 as Asian markets came online. Overhead pressures remain for this currency and it is likely to resume the downturn as the day progresses.
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
Strong Bearish
The Japanese Yen (JPY)
Key news events today
GDP (11:50 pm GMT)
What can we expect from JPY today?
After contracting 0.7% in the third quarter of 2023, the preliminary reading points to a minor expansion of 0.2% on an annualised basis for the fourth quarter. Following the hotter-than-expected inflation data from the US overnight, USD/JPY hit a high of 150.88 before retreating from this 3-month high. With this currency trading above 150 once more, talks of potential intervention measures by the Bank of Japan (BoJ) have resurfaced. Despite a renewed demand for the dollar, this currency pair could pull back today as any intervention chatter by the BoJ combined with higher GDP growth is likely to strengthen the yen in the near-term.
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
Medium Bullish
The Euro (EUR)
Key news events today
GDP (10:00 am GMT)
Industrial Production (10:00 am GMT)
What can we expect from EUR today?
GDP growth stalled in the fourth quarter of 2023 in the Eurozone. The preliminary reading for the 1st quarter of 2024 points to another consecutive period of stagnation in economic growth. Should the Eurozone unexpectedly fall into contraction, it is likely to function as a bearish catalyst for the Euro during the Europe session. Meanwhile, industrial production has fallen over the past three months and with December’s estimate pointing to another month of decline, production is set to remain weak and add further downward pressure on the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight 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 7 March 2024.
Next 24 Hours Bias
Strong Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following yesterday’s softer-than-expected inflation data in Switzerland, the Swiss franc came under immense selling pressure causing USD/CHF to spike as high as 0.8815 following this news release. Combined with a hot CPI result in the US, this currency pair surged once more to hit 0.8880 before pulling back slightly at the beginning of the Asia session. However, it could resume the upturn in the latter part of the day.
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
Strong Bullish
The Pound (GBP)
Key news events today
CPI (7:00 am GMT)
What can we expect from GBP today?
Despite inflation in the UK moderating quite significantly throughout 2023, it remains stubbornly high. Headline CPI registered 4.0% while the core reading was at 5.1% on an annualised basis, both well above the Bank of England’s target of 2%. The estimate of 4.1% for the month of January indicates a potential reacceleration in headline inflation and a stronger-than-expected result is likely to spur strong demand for the Pound during the European trading hours.
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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
BoC Member Mendes Speaks (5:00 pm GMT)
What can we expect from CAD today?
Bank of Canada (BoC) Deputy Governor Rhys Mendes is due to speak at Wilfrid Laurier University in Ontario where his statements and remarks could have an impact on the direction of the Loonie. USD/CAD surged past 1.3580 overnight before retreating away from this level as Asian markets came online. Any hawkish rhetoric by deputy Governor Mendes could cause this currency pair to pull back further during the US session.
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 has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- 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
Strong Bullish
Oil
Key news events today
EIA Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
API stockpiles unexpectedly rose by 8.5M barrels of crude versus the estimate of just 2.6M to register a huge upside surprise. Although geopolitical tensions continue to prop up crude oil prices, the gains were capped overnight as the recent hot CPI data in the US dent any hopes of an interest rate cut by the Federal Reserve in March – higher rates could dampen global economic growth and potentially stifle demand for crude. The EIA inventories are expected to increase by 2.6M barrels and should stock levels increase more than anticipated, it could hold back prices in the near-term. WTI oil briefly climbed above $78 per barrel overnight before pulling back quite strongly to dip under $77.50 as Asian markets came online.
Next 24 Hours Bias
Weak Bearish
