IC Markets Asia Fundamental Forecast | 29 January 2024
What happened in the US session?
The PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – showed inflation continuing to cool. The headline reading remained unchanged at 2.6% YoY in December, in line with market expectations, while the core PCE eased further from 3.2% YoY to 2.9% YoY, beating the estimate of 3.0%.
Despite an overall softer PCE price data, the dollar index (DXY) remained elevated to close at 103.47 last Friday to register a fourth consecutive week of gains. Demand for the dollar has been robust in 2024 thus far, a trend that could continue this week as well.
What does it mean for the Asia Session?
As Asian markets digest the latest PCE inflation data from the US, demand for the dollar is likely to remain elevated. However, the DXY could slide lower in the initial part of the day and provide a lift for gold prices.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
Demand for the dollar has been strong since the beginning of this year, driving the DXY from a low of 100.70 at the end of 2023 to as high as 103.80 last week. With the first FOMC meeting of 2024 coming up on 1st February, Federal Reserve Chairman Jerome Powell could add further fuel to the current bullish momentum and propel DXY higher.
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 Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Demand for the dollar has been strong since the beginning of this year, driving the DXY from a low of 100.70 at the end of 2023 to as high as 103.80 last week. With the first FOMC meeting of 2024 coming up on 1st February, Federal Reserve Chairman Jerome Powell could add further fuel to the current bullish momentum and propel DXY higher, adding greater overhead pressures on gold prices.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Stronger demand for the US dollar has sent the Aussie under 0.6600 to mark a fourth consecutive week of decline. With the first FOMC meeting of 2024 looming on the 1st of February, the Aussie could come under heavy selling pressure once more.
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
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Stronger demand for the US dollar has caused the Kiwi to plunge under 0.6100. As of last Friday, the Kiwi has notched a third week of decline out of the last four trading weeks. With the first FOMC meeting of 2024 looming on the 1st of February, the Kiwi could come under heavy selling pressure once more.
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
Unemployment Rate (11:30 pm GMT)
What can we expect from JPY today?
Japan’s unemployment rate has remained relatively stable over the past 12 months and December’s estimate of 2.5% points to a robust labour market. However, job vacancies have dwindled in recent months which seems to suggest a potential slowdown in hiring by businesses. The Japanese yen has weakened significantly this year causing USD/JPY to rise within a whisker of 149 last week – this currency pair is expected to remain elevated today.
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
Medium Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Stronger demand for the US dollar has caused the Euro to drop under 1.0850 and register a third week of decline out of the last four. This currency could retrace higher as we begin the new trading week but overhead pressures remain.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc has weakened significantly in 2024 as USD/CHF climbed as high as 0.8730 last week. However, this currency pair retreated quite sharply on Friday to fall under 0.8650. Downward pressures can be expected for USD/CHF in the near-term.
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?
The Pound has shown strong resilience in the face of a robust US dollar in 2024. This currency has ranged approximately between 1.2600 and 1.2800 over the last three weeks – a trend that looks set to extend as the new trading 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 demand for crude oil has capped the recent gains in USD/CAD as it hit a high of 1.3540 last week before pulling back to fall under 1.3500 on Friday. This currency pair is likely to remain under pressure 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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices marked its largest weekly gain since August 2023 with WTI gaining 6.5% to climb above $78 per barrel. The combination of higher crude demand in the US, supply disruptions in Libya and Russia in addition to geopolitical tensions in the Middle East and the Red Sea have functioned as a bullish catalyst for crude. This commodity is likely to remain elevated as the new trading week gets underway.
Next 24 Hours Bias
Medium Bullish
