IC Markets Asia Fundamental Forecast | 23 April 2024
What happened in the US session?
Although inflation has retreated quite steadily over the past ten to twelve months, inflationary pressures in Canada’s manufacturing and industrial production sectors continue to tick up. The Industrial Product Price Index (IPPI) – which measures factory gate and producer prices – increased 0.8% MoM while the Raw Materials Price Index (RMPI) jumped 4.7% MoM in March, which was higher than the estimate of 2.9% as well as the previous month’s reading of 2.1%. The Loonie strengthened overnight driving USD/CAD below the threshold of 1.3700 – this currency pair was trading around 1.3690 as Asian markets came online.
What does it mean for the Asia Session?
Australia’s flash Composite PMI for the month of April showed business activity rising at the fastest pace in two years, supported primarily by the services sector. Although manufacturing continues to remain in contraction territory, it hit a 8-month high of 49.1 to inch closer towards expansion. The Aussie climbed above 0.6460 following this news release and could remain elevated today.
The Dollar Index (DXY)
Key news events today
S&P Global Composite PMI (1:45 pm GMT)
What can we expect from DXY today?
The flash Composite PMI for the month of April is expected to show the manufacturing and services sectors both expanding steadily in the US. This would mark the fourth month of expansion in a row for manufacturing as this sector rebounds after eight consecutive months of contraction in 2023. Should we see another round of robust PMI activity, the dollar could receive a boost later today.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- 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 and 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%.
- 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 April to 1 May 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
S&P Global Composite PMI (1:45 pm GMT)
What can we expect from Gold today?
The flash Composite PMI for the month of April is expected to show the manufacturing and services sectors both expanding steadily in the US. This would mark the fourth month of expansion in a row for manufacturing as this sector rebounds after eight consecutive months of contraction in 2023. Should we see another round of robust PMI activity, the dollar could receive a boost to potentially drive gold prices even lower later today.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
S&P Global Composite PMI (11:00 pm GMT 22nd April)
What can we expect from AUD today?
Australia’s flash Composite PMI for the month of April showed business activity rising at the fastest pace in two years, supported primarily by the services sector. Although manufacturing continues to remain in contraction territory, it hit an 8-month high of 49.1 to inch closer towards expansion. The Aussie climbed above 0.6460 following this news release and could remain elevated today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the seventh pause out of the last eight board meetings.
- The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated and is moderating at a more gradual pace.
- The central forecasts are for inflation to return to the target range of 2–3% in 2025, and to the midpoint in 2026.
- While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 7 May 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?
The Kiwi rose above 0.5920 overnight before pulling back slightly as Asian markets came online. This currency pair was trading around 0.5915 before resuming the uptrend to rise towards 0.5930, buoyed by Australia’s upbeat PMI report this morning.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
S&P Global Composite PMI (12:30 am GMT)
What can we expect from JPY today?
Japan’s flash Composite PMI for the month of April showed business activity accelerating to an 8-month high led predominantly by the services sector. New orders highlighted solid growth while business confidence was positive as the pace of hiring also picked up. The yen strengthened this morning and caused USD/JPY to pull back – this currency pair was trading around 154.70 and could slide lower during the Asia and Europe sessions.
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its JGB purchases with broadly the same amount as before.
- In addition, the Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) and will also gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, 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 26 April 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
S&P Global Composite PMI (8:00 am GMT)
What can we expect from EUR today?
The flash Composite PMI for the Euro Area is expected to expand for the second month in a row as services activity leads overall economic growth once again. Should the flash PMI surprise markets to the upside, it could potentially function as a short-term bullish catalyst for the Euro before European markets come online.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
A weak franc continues to keep USD/CHF elevated as it hit an overnight high of 0.9120 – this currency pair should remain elevated and could edge higher towards 0.9150 today.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, going from 1.75% to 1.50% in March.
- For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.
- According to the new forecast, inflation is also likely to remain in this range over the next few years.
- The forecast puts average annual inflation at 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon.
- Swiss GDP growth was moderate in the fourth quarter of last year and it is likely to remain modest in the coming quarters.
- Overall, Switzerland’s GDP is likely to grow by around 1% this year.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
S&P Global Composite PMI (8:30 am GMT)
What can we expect from GBP today?
The flash Composite PMI for the UK is anticipated to expand for the sixth month in a row. With manufacturing activity returning to expansion in March following one and half years of contraction, economic growth looks to be more well-balanced in 2024. Should the flash PMI surprise markets to the upside, it could potentially function as a short-term bullish catalyst for the Pound and drive GBP/USD higher at the start of the European trading hours.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-to-1 to maintain its Official Bank Rate at 5.25% for the fifth consecutive meeting.
- One member preferred to reduce the Bank Rate by 25 basis points to 5.0%.
- Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December while Services consumer price inflation has declined but remains elevated, at 6.1% in February.
- CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget.
- In the February Report projection, CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2.75%.
- Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year while the fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around 0.25% over coming years.
- Next meeting is on 9 May 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?
Although inflation has retreated quite steadily over the past ten to twelve months, inflationary pressures in Canada’s manufacturing and industrial production sectors continue to tick up. The Industrial Product Price Index (IPPI) – which measures factory gate and producer prices – increased 0.8% MoM while the Raw Materials Price Index (RMPI) jumped 4.7% MoM in March, which was higher than the estimate of 2.9% as well as the previous month’s reading of 2.1%. The Loonie strengthened overnight driving USD/CAD below the threshold of 1.3700 – this currency pair was trading around 1.3690 as Asian markets came online.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
API Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
The API stockpiles have increased strongly over the last couple of weeks and should today’s report point to a third consecutive week of bigger inventory builds, it could dampen the recent rise in crude prices later during the US session. WTI oil rebounded off yesterday’s lows of $81.40 to climb above $83 per barrel overnight as the prospect of potentially tighter supplies in the coming months lifted prices. High volatility remains for this commodity and traders should be wary of sharp moves in either direction.
Next 24 Hours Bias
Weak Bullish
