IC Markets Asia Fundamental Forecast | 19 February 2024
What happened in the US session?
The Producer Price Index (PPI) – which measures wholesale inflation – bucked its downward trend by rising strongly on a monthly basis for the month of January. Headline PPI increased 0.3% MoM while the core jumped 0.5% MoM with both figures coming in higher than their estimate of 0.1%. On an annualised basis, the headline PPI rose 0.9% YoY (versus its estimate of 0.6%) while the core printed at 2.0% YoY (versus its estimate of 1.6%). Not only did the PPI readings come in hotter than expected, but they were also all higher than December’s values. This re-acceleration of prices in the wholesale sector caused the dollar index (DXY) to spike as high as 104.67 last Friday but the gains were short-lived as it reversed almost immediately to end the week at 104.27.
Meanwhile, the University of Michigan (UoM) released its preliminary findings on consumer sentiment for the month of February where the year-ahead inflation expectations component of this report rose from 2.9% to 3.0% for the month of February. Despite inflationary pressures appearing to return in the US, demand for the dollar remains weak.
What does it mean for the Asia Session?
As Asian markets digest the latest PPI data in the US, the DXY was sliding lower towards the 104-level while spot gold prices climbed higher aiming for the $2,020/oz region. After gaining over 3% last week, crude oil prices have run into a strong resistance zone with WTI oil stalling around the $78.80 per barrel mark before falling as the new trading week gets under way.
The Dollar Index (DXY)
Key news events today
Washington’s Birthday (US Holiday)
What can we expect from DXY today?
US markets will be closed today for Washington’s Birthday to honour all those who served as presidents of the United States. US equity markets are closed all day while the futures markets will close early between 6:00 pm GMT and 7:30 pm GMT today. Lower trading volume can be expected while trading activity could also be fairly muted after the Europe session comes to an end. The DXY opened at around 104.30 before sliding lower as Asian markets came online.
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
Medium Bearish
Gold (XAU)
Key news events today
Washington’s Birthday (US Holiday).
What can we expect from Gold today?
The futures market for metals will close early at 7:30 pm GMT in view of Washington’s Birthday so we can expect lower trading volume and activity today. Spot gold prices opened around $2,013/oz to climb above $2,020/oz at the beginning of the Asia session and are likely to remain elevated today.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
After falling sharply since the beginning of the new year, the Aussie found support around the region of 0.6450 over the last couple of weeks to rebound higher. This currency opened around 0.6520 and is likely to remain elevated today.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
After falling sharply since the beginning of 2024, the Kiwi found support around the region of 0.6070 over the last couple of weeks to rebound higher. This currency opened around 0.6117 and is likely to remain elevated 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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Demand for the dollar waned towards the end of last week capping the gains on USD/JPY. This currency pair hit a high of 150.90 last Tuesday before pulling back from this level. It opened around 150.10 and dipped under 149 as Asian markets came online.
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
No major news events.
What can we expect from EUR today?
After falling sharply since the beginning of the new year, the Euro found support just above the threshold of 1.0700 last week to rebound higher. This currency opened around 1.0770 and was rising towards 1.0800 at the beginning of the Asia session – it is likely to remain elevated today.
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
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Demand for the dollar diminished towards the second half of last week as a combination of retail sales and PPI data in the US caused USD/CHF to retreat from last Wednesday’s high of 0.8885. This currency pair opened around 0.8810 before sliding lower as Asian markets came online.
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 release of poor retail sales and lower PPI data last week caused demand for the dollar to rescind causing the Pound to find strong support around 1.2550 last week before rebounding higher. This currency opened around 1.2595 and climbed above 1.2600 at the beginning of the Asia session – it is expected to remain elevated today.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Canadian equity markets will also be closed today so we can expect lower trading volume and activity after the Europe session comes to an end. USD/CAD opened around 1.3470 and is likely to remain under pressure today as demand for the US dollar wanes.
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
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil posted its largest two-week increase since October 2023 with WTI oil rising more than 9% over this period to hit a high of $78.80 per barrel. However, we could see this commodity pullback today before resuming the uptrend as geopolitical tensions remain elevated in the Middle East.
Next 24 Hours Bias
Weak Bearish
