IC Markets Asia Fundamental Forecast | 20 February 2024
What happened in the US session?
With US markets closed for Washington’s Birthday yesterday, there was nothing much to take note of overnight. The dollar index (DXY) traded within an extremely narrow range of 104.15 and 104.35 while spot gold prices pulled back slightly towards $2,014/oz. Crude oil remained elevated with WTI oil hovering above $78 per barrel and it could continue to climb higher today.
What does it mean for the Asia Session?
The RBA will release its minutes from the monetary policy meeting that took place on the 6th of February where they kept the cash rate on hold at 4.35%. The minutes will provide in-depth insights into the economic conditions that influenced their decision and could impact the direction of the Aussie this morning.
The Dollar Index (DXY)
Key news events today
CB Leading Economic Index (3:00 pm GMT)
What can we expect from DXY today?
The Conference Board will release its leading economic index (LEI) for the month of January where the estimate points to another month of decline. Although the LEI continues to signal an underlying weakness in the US economy, US GDP growth over the past two quarters has been anything but robust. The DXY found support around the region of 104.20 and could remain elevated today.
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
CB Leading Economic Index (3:00 pm GMT)
What can we expect from DXY today?
The Conference Board will release its leading economic index (LEI) for the month of January where the estimate points to another month of decline. Although the LEI continues to signal an underlying weakness in the US economy, US GDP growth over the past two quarters has been anything but robust. Demand for the dollar weakened towards the end of last week but it looks to be returning today and could potentially add downward pressures on gold as the day progresses.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (12:30 am GMT)
What can we expect from AUD today?
The RBA will release its minutes from the monetary policy meeting that took place on the 6th of February where they kept the cash rate on hold at 4.35%. The minutes will provide in-depth insights into the economic conditions that influenced their decision and could impact the direction of the Aussie during the Asia session.
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi was one of the worst-performing currencies as Asian markets came online, dropping as low as 0.6131. Overhead pressures are likely to remain for this currency 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 Bearish
The Japanese Yen (JPY)
Key news events today
Trade Balance (11:50 pm GMT)
What can we expect from JPY today?
Japan’s trade balance posted a surprise surplus of ¥62.1B in December 2023 as robust demand from the US and China boosted exports. This was Japan’s first surplus in three months and should January’s figure post another month of surplus, it could provide a potential boost for the yen and cause USD/JPY to fall.
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 Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro stalled around the region of 1.0780 overnight before pulling back towards 1.0760 at the beginning of the Asia session. Demand for the dollar appears to be picking up today and it is likely to keep the Euro under pressure as the day progresses.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
Trade Balance (7:00 am GMT)
What can we expect from CHF today?
Switzerland’s trade surplus narrowed to CHF1.4B in December which was the smallest surplus since November 2022. The balance of trade has decreased quite strongly over the past three months and should it continue to narrow further, it could indicate a potential weakening of the Swiss economy and put the Swiss franc under pressure.
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
Monetary Policy Report Hearings (Tentative)
What can we expect from GBP today?
The Bank of England (BoE) Governor Andrew Bailey will deliver his testimony before the Parliament’s Treasury Committee along with several other members of the Monetary Policy Committee (MPC). The hearings are a few hours in length and could inject a certain level of volatility for the Pound over this period.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
CPI (1:30 pm GMT)
What can we expect from CAD today?
Headline inflation in Canada accelerated from 3.1% to 3.4% on an annualised basis for the month of December – this increase was primarily due to a rebound in gasoline and transportation costs. Should inflationary pressures pick up once more in February, it could function as a bullish catalyst for the Loonie and potentially drive USD/CAD lower 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
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Lingering supply concerns stemming from geopolitical tensions in the Middle East are keeping crude oil prices elevated. WTI oil remains elevated, trading around $78.50 per barrel and is expected to edge higher today.
Next 24 Hours Bias
Medium Bullish
