IC Markets Asia Fundamental Forecast | 8 May 2024
IC Markets Asia Fundamental Forecast | 8 May 2024
What happened in the US session?
Despite another strong month of economic expansion as indicated by the Ivey PMI, the Loonie was overpowered by the dollar bulls as USD/CAD surged past the 1.3700-threshold with ease. This currency pair was rising strongly towards 1.3750 at the beginning of the Asia session with the next major resistance zone coming in at 1.3780.
What does it mean for the Asia Session?
The dollar index (DXY) rose strongly overnight as the dollar bulls returned with a full vengeance. This index hit a high of 105.45 during the US session and the bullish momentum continued this morning as it climbed above 105.50 – strong tailwinds are likely to prevail today.
The Dollar Index (DXY)
Key news events today
FOMC Member Jefferson Speaks (3:00 pm GMT)
FOMC Member Cook Speaks (5:30 pm GMT)
What can we expect from DXY today?
There is not one but two Federal Reserve governors speaking later during the US session. Governor Philip Jefferson will be speaking about careers in economics at an event hosted by the Federal Reserve. After which, Governor Lisa Cook will speak on the Semi-Annual Financial Stability Report at the Brookings Institution – both events will be held in Washington DC where audience questions are expected. Should either of them drop any remarks on the outlook for future monetary policy action, it is certain to inject higher volatility for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the sixth 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 have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been a lack of further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- The Committee’s assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 11 to 12 June 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
FOMC Member Jefferson Speaks (3:00 pm GMT)
FOMC Member Cook Speaks (5:30 pm GMT)
What can we expect from Gold today?
There is not one but two Federal Reserve governors speaking later during the US session. Governor Philip Jefferson will be speaking about careers in economics at an event hosted by the Federal Reserve. After which, Governor Lisa Cook will speak on the Semi-Annual Financial Stability Report at the Brookings Institution – both events will be held in Washington DC where audience questions are expected. Should either of them drop any remarks on the outlook for future monetary policy action, it is certain to inject higher volatility for gold.
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?
Following yesterday’s dovish press conference by RBA Governor Michele Bullock, the Aussie tumbled hard overnight as it broke cleanly under the threshold of 0.6600. This currency pair continued sliding lower to trade around 0.6570 as Asian markets came online.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the eighth pause out of the last nine board meetings.
- The CPI grew by 3.6% over the year to the March quarter, down from 4.1% cent over the year to December. Underlying inflation was higher than headline inflation and declined by less – this was due in large part to services inflation, which remains high and is moderating only gradually.
- The central forecasts, based on the assumption that the cash rate follows market expectations, are for inflation to return to the target range of 2 to 3% in the second half of 2025, and to the midpoint in 2026.
- In the near term, inflation is forecast to be higher because of the recent rise in domestic petrol prices, and higher than expected services price inflation, which is now forecast to decline more slowly over the rest of the year.
- Inflation is, however, expected to decline over 2025 and 2026.
- 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 18 June 2024.
Next 24 Hours Bias
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi dived strongly overnight as it was pulled down by the weight of its Pacific neighbour. NZD/USD fell under the 0.6000-threshold and was dropping lower at the beginning of the Asia session – this currency pair was trading around 0.5985 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 Bearish
The Japanese Yen (JPY)
Key news events today
Average Cash Earnings (11:30 pm GMT)
What can we expect from JPY today?
The average cash earnings – an indicator for wage growth – increased relatively strongly in January and February, rising 2% and 1.7%, respectively YoY. The industries that led the wage growth in February were information & communications; scientific research, professional and technical; and education and learning support. March’s estimate of 1.5% indicates a slow down in the pace of wage increases – should the result surprise markets to the upside; it could provide a boost for the yen and potentially add downward pressures on USD/JPY.
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.
- In a quarterly outlook, the committee revised higher CPI prints for FY 2024 to 2.8% from January’s projections of 2.4%, due to the waning effects of higher import prices and fewer government support measures.
- For 2025, the board expects core inflation to hit 1.9%, slightly higher than its earlier estimates of 1.8%, reflecting a recent rise in oil prices.
- Policymakers cut their 2023 GDP growth forecast to 1.3% from 1.8% and for FY 2024, the bank also slashed its GDP outlook to 0.8% from 1.2%, mainly reflecting lower private consumption.
- Next meeting is on 14 June 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?
Retail sales in the Euro Area rebounded in strongly in March as it jumped 0.8% MoM following a decline of 0.3% in the previous month – the market’s forecast was 0.6%. Despite sales beating forecast, the Euro came under pretty heavy selling pressures as the dollar bulls returned overnight. This currency pair fell under 1.0750 and could remain under pressure today.
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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The unemployment rate in Switzerland edged lower from 2.4% in March to 2.3% in April to signal a tight labour market. Despite an improvement in the unemployment figures, USD/CHF rose strongly as demand for the dollar returned overnight. This currency pair climbed above 0.9080 and was rising towards the threshold of 0.9100 as Asian markets came online.
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
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Strong demand for the dollar overnight caused GBP/USD to tumble under the threshold of 1.2500. Overhead pressures are likely to remain for this currency pair today as it slid lower towards 1.2480 this morning.
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
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Despite another strong month of economic expansion as indicated by the Ivey PMI, the Loonie was overpowered by the dollar bulls as USD/CAD surged past the 1.3700-threshold with ease. This currency pair was rising strongly towards 1.3750 at the beginning of the Asia session with the next major resistance zone coming in at 1.3780.
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
Strong Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API stockpiles grew by 0.5M barrels of crude to disappoint market expectations of a drawdown of 1.4M, causing oil prices to edge lower. WTI oil has ranged approximately between $78 and $79 per barrel since last Friday and should the EIA inventories also point to a surprise increase in storage levels, this commodity is likely to come under pressure once more.
Next 24 Hours Bias
Medium Bearish
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