IC Markets Asia Fundamental Forecast | 30 January 2024
What happened in the US session?
The dollar index (DXY) reached a high of 103.80 overnight before reversing to slide lower, dropping under 103.50 by the end of the US session. Meanwhile, crude oil prices also pulled back quite sharply as demand concerns from China offset the ongoing geopolitical tensions in the Middle East and supply disruptions in the US and Russia – WTI oil tumbled 2.4% to drop as low as $76.35 per barrel.
What does it mean for the Asia Session?
Australian retail sales grew strongly in November with growth coming in at 2.0% MoM to beat the estimate of 1.2% by a wide margin. This was the strongest pace in retail trade since November 2021, boosted by Black Friday events. However, December’s forecast points to a decline of 1.9% MoM to highlight a drastic reversal in consumer spending habits. Should sales tumble more than the forecast, the Aussie could come under heavy selling pressure.
The Dollar Index (DXY)
Key news events today
CB Consumer Confidence (3:00 pm GMT)
JOLTS Job Openings (3:00 pm GMT)
What can we expect from DXY today?
The Conference Board (CB) will release its survey on consumer confidence for the month of January. US confidence surged in December as optimism was restored, led by a slower rate of inflation and more positive views on business conditions and job availability. Should consumers continue to report lower inflation expectations, the dollar could come under pressure.
The JOLTS Job Openings number has trended lower since peaking in February of 2023, indicating a slowdown in hiring practices by US corporations. December’s estimate of 8.73M openings shows this downward trend is likely to extend and could function as a potential bearish catalyst for the dollar during the US session.
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
CB Consumer Confidence (3:00 pm GMT)
JOLTS Job Openings (3:00 pm GMT)
What can we expect from Gold today?
The Conference Board (CB) will release its survey on consumer confidence for the month of January. US confidence surged in December as optimism was restored, led by a slower rate of inflation and more positive views on business conditions and job availability. Should consumers continue to report lower inflation expectations, the dollar could come under pressure.
The JOLTS Job Openings number has trended lower since peaking in February of 2023, indicating a slowdown in hiring practices by US corporations. December’s estimate of 8.73M openings shows this downward trend is likely to extend and could function as a potential bearish catalyst for the dollar. Should the dollar weaken during the US session, it could keep gold prices supported.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Retail Sales (12:30 am GMT)
What can we expect from AUD today?
Australian retail sales grew strongly in November with growth coming in at 2.0% MoM to beat the estimate of 1.2% by a wide margin. This was the strongest pace in retail trade since November 2021, boosted by Black Friday events. However, December’s forecast points to a decline of 1.9% MoM to highlight a drastic reversal in consumer spending habits. Should sales tumble more than the forecast, the Aussie could come under heavy selling pressure.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi found support around the 0.6100-level overnight to rise strongly to hit a high of 0.6145 before pulling back slightly by the end of the US session. The Kiwi then made a second attempt to climb above this recent high as Asian markets came online.
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Retail Sales (11:50 pm GMT)
What can we expect from JPY today?
Japan’s retail sales grew 1.0% MoM in November to mark the strongest monthly gain in four months. Consumer spending was led by sales in sectors such as automobiles, machinery and equipment, food and beverage, and department stores. Should sales print higher than market expectations, it could trigger stronger demand for the Japanese yen and cause USD/JPY to come under pressure.
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
GDP (10:00 am GMT)
What can we expect from EUR today?
The EU economy contracted by 0.1% during the third quarter of 2023, marking a reversal from a growth of 0.1% in the previous quarter. The preliminary flash GDP for the fourth quarter points to another month of contraction and a deeper-than-expected figure could put downward pressure on the Euro.
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
Trade Balance (7:00 am GMT)
What can we expect from CHF today?
Switzerland’s trade surplus narrowed to CHF2.0B in November 2023 which was the smallest figure since November 2022. Should December’s figures continue to show the trade surplus narrowing further, it could cause the Swiss franc to weaken and potentially lift USD/CHF.
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound fell to a low of 1.2660 overnight before reversing off this level to climb higher. It continued to rise as Asian markets came online, moving above 1.2700 – this currency could remain elevated today.
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?
Demand for the Canadian dollar has increased recently causing USD/CAD to tumble from its recent high of 1.3530 to drop towards 1.3400. Overhead pressures are building for the currency pair and it could break under 1.3400 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 Bearish
Oil
Key news events today
API Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
Crude oil prices pulled back quite sharply overnight as demand concerns from China offset the ongoing geopolitical tensions in the Middle East and supply disruptions in the US and Russia. WTI oil tumbled 2.4% to drop as low as $76.35 per barrel but managed to reverse and climb above $76 at the beginning of the Asia session.
Looking at inventories, the API stockpiles experienced a larger-than-expected drawdown last week and a continuation of this trend could provide a boost to crude oil after yesterday’s decline.
Next 24 Hours Bias
Weak Bullish
