IC Markets Asia Fundamental Forecast | 18 January 2024
What happened in the US session?
Retail sales soared 0.6% MoM in December, beating the forecast of 0.4% by quite a wide margin. This figure marked the largest increase in three months, led by the auto sales, online retailing, and clothing segments. Despite higher inflation, consumer spending in the US remains resilient – stronger sales drove the dollar index (DXY) as high as 103.70 overnight.
What does it mean for the Asia Session?
As Asian markets digest the latest retail sales figures, the DXY retreated from Wednesday’s high and was sliding lower towards the threshold of 103. Spot gold prices found support around the $2,000/oz region to climb higher while crude oil prices rebounded overnight.
The Dollar Index (DXY)
Key news events today
FOMC Member Bostic Speaks (12:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Atlanta President Raphael Bostic is due to speak about the economic outlook at the Atlanta Chamber of Commerce where audience questions are expected. Should he also follow in the footsteps of Governor Christopher Waller by pushing back against aggressive interest rate cuts in 2024, the dollar is likely to see strong demand once more.
Not only have unemployment claims in the US trended lower over the past few weeks, they have also printed lower than their respective estimates – this signals a robust labour market. Another week of lower-than-expected claims could potentially function as another bullish catalyst for the greenback.
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
Weak Bearish
Gold (XAU)
Key news events today
FOMC Member Bostic Speaks (12:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of Atlanta President Raphael Bostic is due to speak about the economic outlook at the Atlanta Chamber of Commerce where audience questions are expected. Should he also follow in the footsteps of Governor Christopher Waller by pushing back against aggressive interest rate cuts in 2024, the dollar is likely to see strong demand once more.
Not only have unemployment claims in the US trended lower over the past few weeks, they have also printed lower than their respective estimates – this signals a robust labour market. Another week of lower-than-expected claims could potentially function as another bullish catalyst for the greenback and gold prices could come under heavy selling pressures again.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (12:30 am GMT)
What can we expect from AUD today?
The Australian labour market has remained quite robust thus far with strong employment gains but the unemployment rate edged higher while job vacancies dwindled in recent months. December’s estimate of 15.4k job gains is a far cry from the previous month’s reading of 61.5k, pointing to a potential softening of the labour market. Should the latest report indicate weaker-than-expected data, the Aussie could come under selling pressure during the Asia session.
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 tumbled strongly overnight but found support around the threshold of 0.6100. This currency was rising towards 0.6150 at the beginning of the Asia session and could retrace higher today.
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
National Core CPI (11:30 pm GMT)
What can we expect from JPY today?
Japan’s core inflation rate has trended lower over the past few months with November’s reading easing to 2.5% YoY – the lowest level since July 2022. December’s estimate of 2.3% points to further easing which allows the Bank of Japan to maintain its ultra-dovish monetary policy stance and thus keep USD/JPY elevated.
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
Weak Bearish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (3:15 pm GMT)
What can we expect from EUR today?
ECB President Christine Lagarde will be participating in a panel discussion titled “Uniting Europe’s Markets” at the World Economic Forum in Davos where her statements and comments could have a profound impact on the direction of the Euro later today.
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 Bullish
The Swiss Franc (CHF)
Key news events today
SNB Chairman Jordan Speaks (10:30 am GMT)
What can we expect from CHF today?
SNB Governing Board Chairman Thomas Jordan will be participating in a panel discussion titled “All Change: What Next for Monetary Policy?” at the World Economic Forum in Davos. His statements and replies to audience questions are likely to have a major impact on the Swiss franc during this discussion.
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound tumbled strongly during the European trading hours yesterday but found support around 1.2600 to rebound strongly, with hotter-than-expected inflation in the UK providing the catalyst for this bullish rebound. This currency was trading around 1.26900 as Asian markets came online and is likely to climb above 1.2700 as the day progresses.
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?
Stronger retail sales in the US drove USD/CAD as high as 1.3540 overnight. However, this currency pair pulled back and dipped under 1.3500 as Asian markets came online. It could continue to slide lower before resuming the uptrend as the day progresses.
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 (4:00 pm GMT)
What can we expect from Oil today?
The API stockpile added 0.5M barrels of crude versus the estimate of a 2.4M-drawdown, marking the first inventory build in three weeks. Despite the higher inventory build, crude oil prices received a boost from an OPEC monthly report that forecasted a relatively strong growth in global oil demand over the next two years. WTI oil rebounded from yesterday’s low of $71 per barrel before hitting $71.90 at the onset of the Asia session.
Next 24 Hours Bias
Medium Bullish
