IC Markets Asia Fundamental Forecast | 21 February 2024
What happened in the US session?
Inflation in Canada continues to moderate lower as headline CPI eased from 3.4% to 2.9% in January while the core reading slowed from 2.6% to 2.4%, both on an annualised basis. Inflationary pressures continue to dissipate causing the Loonie to weaken and send USD/CAD surging past 1.3500 to hit an overnight high of 1.3530. This currency pair could remain elevated today.
What does it mean for the Asia Session?
Wages in Australia advanced 4.0% in the third quarter of 2023 on an annualised basis. This was the highest reading since the first quarter of 2009 as wages in both the private and public sectors grew strongly. Should the wage price index continue to rise, it could cause inflation to remain stubbornly high, adding pressure on the RBA to maintain the cash rate at current levels longer than originally anticipated. The Aussie could receive a boost following this news release.
The Dollar Index (DXY)
Key news events today
FOMC Meeting Minutes (7:00 pm GMT)
What can we expect from DXY today?
The Federal Reserve will release the minutes of the FOMC meeting that took place on 31st January where investors and traders will get further in-depth insights into the economic and financial conditions that influenced Fed Chairman Jerome Powell and his fellow policymakers on their recent outlook on monetary policy. Following last week’s hotter-than-expected CPI and PPI data, we could see a pretty hawkish tone being communicated in the minutes which could potentially provide a bullish catalyst for the dollar.
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
FOMC Meeting Minutes (7:00 pm GMT)
What can we expect from DXY today?
The Federal Reserve will release the minutes of the FOMC meeting that took place on 31st January where investors and traders will get further in-depth insights into the economic and financial conditions that influenced Fed Chairman Jerome Powell and his fellow policymakers on their recent outlook on monetary policy. Following last week’s hotter-than-expected CPI and PPI data, we could see a pretty hawkish tone being communicated in the minutes which could potentially provide a bullish catalyst for the dollar and create downward pressure on gold.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Wage Price Index (1:30 am GMT)
What can we expect from AUD today?
Wages in Australia advanced 4.0% in the third quarter of 2023 on an annualised basis. This was the highest reading since the first quarter of 2009 as wages in both the private and public sectors grew strongly. Should the wage price index continue to rise, it could cause inflation to remain stubbornly high adding pressure on the RBA to maintain the cash rate at current levels longer than anticipated. The Aussie could receive a boost following this news release.
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
Trade Balance (9:45 pm GMT)
What can we expect from NZD today?
New Zealand’s trade deficit narrowed significantly to $0.3B in December from $1.2B in the previous month. Despite improvement in the trade deficit, exports fell 8.7% YoY due to lower sales of milk powder, butter, and cheese; casein and caseinates; and wood pulp and waste paper. Exports to major trading partners such as China, Australia and the US all declined. Should the slump in exports to major trading partners continue to grow, it could add downward pressure on the Kiwi.
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?
Despite demand for the dollar easing this week, USD/JPY has managed to remain above 149.80 so far. With the Bank of Japan maintaining its ultra-dovish monetary policy stance, the Japanese yen continues to be depressed and provides lift for this currency pair.
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?
Weaker demand for the greenback caused the Euro to break above 1.0800 overnight, touching a high of 1.0839. This currency is likely to edge higher 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
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Despite demand for the dollar easing this week, USD/CHF has managed to remain above 0.8800 thus far. The Swiss franc continues to be weak and provides lift for this currency pair.
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
No major news events.
What can we expect from GBP today?
Weaker demand for the greenback caused the Pound to break above 1.2650 overnight, touching a high of 1.2669. This currency pulled back and dipped under 1.2650 towards the end of the US session but it could resume the uptrend 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% 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?
Inflation in Canada continues to moderate lower as headline CPI eased from 3.4% to 2.9% in January while the core reading slowed from 2.6% to 2.4%, both on an annualised basis. Inflationary pressures continue to dissipate causing the Loonie to weaken and send USD/CAD surging past 1.3500 to hit an overnight high of 1.3530. This currency pair could remain elevated today.
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
Medium Bullish
Oil
Key news events today
API Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
Worries on weaker global demand for crude offset geopolitical tensions in the Middle East overnight as WTI oil slid towards $77 per barrel. API stockpiles experienced a strong build last week by unexpectedly rising by 8.5M barrels versus the estimate of just 2.6M. Should inventories increase more than anticipated once more, it could function as a short-term bearish catalyst and potentially drive WTI oil under $77 later today.
Next 24 Hours Bias
Weak Bullish
