IC Markets Asia Fundamental Forecast | 3 April 2024
What happened in the US session?
While the JOLTS Job Openings for January were revised lower from 8.86M to 8.75M, the result for February were relatively unchanged as it printed in line with the estimate of 8.76M. After declining since mid-2020, openings have stabilized over the past five months to indicate that hiring practices are shoring up.
During her speech at the Cleveland Association for Business Economics, Federal Reserve Bank of Cleveland President Loretta Mester stated that “she still sees three rate cuts as likely appropriate this year, but that it’s a close call on whether fewer will be needed”. She also mentioned that she would like to see more evidence of inflationary pressures easing before the Fed begins to cut interest rates. Overall, it was a balanced speech that was neither too hawkish nor dovish.
The dollar index (DXY) hit a high of 105.10 during yesterday’s European trading hours before reversing to drop as low as 104.70 overnight following the release of the JOLTS data and President Mester’s speech.
What does it mean for the Asia Session?
The Caixin Services PMI will be released this morning where the estimate of 52.5 for the month of March points to another month of steady expansion. China’s manufacturing sector expanded strongly on Monday to highlight the rebound in overall economic growth over the past few months and should the result for services PMI beat market expectations, it could keep prices for crude oil elevated.
The Dollar Index (DXY)
Key news events today
ADP Employment Report (12:15 pm GMT)
ISM Services PMI (2:00 pm GMT)
Fed Chair Powell Speaks (4:10 pm GMT)
What can we expect from DXY today?
The ADP employment report is expected to show job growth of 148K in March which is a slight increase from the previous month’s reading of 140K. The pace of hiring by US corporations has somewhat slowed in the recent ADP reports and should the result for March fail to beat market estimates, the dollar could come under pressure.
Following the strong rebound in the manufacturing sector as reported by the ISM on Monday, services activity is expected to expand for the 15th consecutive month. Similarly to the manufacturing report, the prices component will be closely watched and another month of higher increases is more than likely to raise concerns for the Federal Reserve on a probable re-acceleration of inflationary pressures in the US.
And finally, Fed Chairman Jerome Powell will be speaking at Stanford’s Business, Government, and Society Forum where he could drop remarks that would inject higher volatility for markets towards the end of the US session.
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
ADP Employment Report (12:15 pm GMT)
ISM Services PMI (2:00 pm GMT)
Fed Chair Powell Speaks (4:10 pm GMT)
What can we expect from Gold today?
The ADP employment report is expected to show job growth of 148K in March which is a slight increase from the previous month’s reading of 140K. The pace of hiring by US corporations has somewhat slowed in the recent ADP reports and should the result for March fail to beat market estimates, the dollar could come under pressure.
Following the strong rebound in the manufacturing sector as reported by the ISM on Monday, services activity is expected to expand for the 15th consecutive month. Similarly to the manufacturing report, the prices component will be closely watched and another month of higher increases is more than likely to raise concerns for the Federal Reserve on a probable re-acceleration of inflationary pressures in the US.
And finally, Fed Chairman Jerome Powell will be speaking at Stanford’s Business, Government, and Society Forum where he could drop remarks that would inject higher volatility for markets towards the end of the US session. It is probably going to be a rollercoaster session for gold prices during US trading hours.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie hit an overnight high of 0.6525 before pulling back as Asian markets came online. This currency pair was sliding towards the threshold of 0.6500 this morning – the key support and resistance levels for today are situated at 0.6480 and 0.6530 respectively.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi retraced higher during the US session before hitting a high of 0.5975 at the beginning of the Asia session. This currency pair fell towards 0.5950 this morning – the key support and resistance levels for today are situated at 0.5940 and 0.5990 respectively.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Weakness in the Japanese yen has kept USD/JPY elevated since mid-March. This currency pair has been hovering around the 151.50-zone over the last couple of weeks with the 152-level functioning as a major barrier for further upside gains.
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 Bullish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT)
What can we expect from EUR today?
The flash CPI reading is expected to show inflation in the Eurozone ease further for the month of April, albeit at a slower rate. Should inflationary pressures dissipate more than anticipated, the Euro is likely to face strong headwinds once again.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fourth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Since the last Governing Council meeting in January, inflation has declined further while the latest ECB staff projections show inflation has been revised down, in particular for 2024, which mainly reflects a lower contribution from energy prices.
- The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages.
- Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in the near term.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
- Next meeting is on 11 April 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?
The Swiss franc has faced strong selling pressures over the past three weeks as USD/CHF hit a high of 0.9092 on Tuesday. This currency pair is expected to remain elevated with the threshold of 0.9150 potentially acting as a major resistance barrier for any further gains.
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
No major news events.
What can we expect from GBP today?
The Pound rebounded off its lows on Tuesday rising from 1.2550 to climb as high as 1.2580 overnight. This currency pair pulled back slightly as Asian markets came online, dipping as low as 1.2567 before reversing to resume the recent uptrend.
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?
Rising crude oil prices could trigger stronger demand for the Loonie and cause USD/CAD to break below its recent support of 1.3560. This currency pair could also slide further especially if the ADP employment report points to a potential softening of the US labour market.
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 grew in the fourth quarter by more than expected, although the pace remained weak and below potential.
- CPI inflation eased to 2.9% in January as goods price inflation moderated further but shelter price inflation remains elevated and is the biggest contributor to inflation.
- Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3.0% to 3.5% range, and the share of CPI components growing above 3.0% declined but is still above the historical average. The Bank continues to expect inflation to remain close to 3.0% during the first half of this year before gradually easing.
- 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
Caixin Services PMI (1:45 am GMT)
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The Caixin Services PMI will be released this morning where the estimate of 52.7 for the month of March points to another month of steady expansion. China’s manufacturing sector expanded strongly on Monday to highlight the rebound in overall economic growth over the past few months and should the result for services PMI beat market expectations, it could keep prices for crude oil elevated.
Later on, the EIA crude oil inventories will be released and should they experience a higher-than-expected drawdown to match the larger-than-anticipated draw in API stockpiles, we could see further gains for oil. Prices for WTI oil touched $85.80 per barrel during the US session and are likely to remain buoyed.
Next 24 Hours Bias
Weak Bearish
