IC Markets Asia Fundamental Forecast | 1 April 2024
What happened in the US session?
Although most markets were closed last Friday for Easter holidays, the PCE Price Index – the Federal Reserve’s preferred measure of inflation – was released to show results for the month of February printed mostly inline with estimates. On an annualised basis, core PCE eased from 2.9% in the previous month to 2.8% while headline PCE edged higher from 2.4% to 2.5%. On a monthly basis, both of these indices increased at a slower rate but were still relatively high when compared to data over the past five months. To sum it all up, PCE inflation is trending in the right direction on an annualised basis but the recent strength of the monthly gains could raise some concerns for the Fed moving forward.
Meanwhile, Federal Reserve Chairman Jerome Powell participated in a moderated discussion at the Macroeconomics and Monetary Policy Conference in San Francisco where he told audience members that he sees the Federal funds rate moving downward as inflation eases but does not expect it to reach the record lows that were observed over the last decade. Chairman Powell also stated that PCE inflation is in line with expectations and the Fed is in no hurry to cut rates. His remarks were well-balanced as observed in previous communications with the media.
What does it mean for the Asia Session?
With the Australian and New Zealand markets closed today along with the European counterparts for the Easter Monday bank holiday, lower-than-usual trading activity and volume should be expected for most parts of the first trading day of April. The DXY gapped slightly lower to open at 104.50 this morning – it retraced slightly higher to close the gap before edging lower at the beginning of this session.
The Dollar Index (DXY)
Key news events today
ISM Manufacturing (12:30 pm GMT)
What can we expect from DXY today?
The ISM Manufacturing index has contracted over the past 16 months to highlight the weakness in the manufacturing sector. While March’s estimate of 48.5 points to another month of contraction, all eyes will be focusing on the prices component of the March report. Prices for raw materials have seen an unwelcome increase in recent months which was reflected in the stronger-than-anticipated PPI data in January and February. Should this component continue to register higher prices, it raises concerns of a potential re-acceleration of inflationary pressures which could give further impetus to the dollar bulls.
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
Medium Bullish
Gold (XAU)
Key news events today
ISM Manufacturing (12:30 pm GMT)
What can we expect from Gold today?
The ISM Manufacturing index has contracted over the past 16 months to highlight the weakness in the manufacturing sector. While March’s estimate of 48.5 points to another month of contraction, all eyes will be focusing on the prices component of the March report. Prices for raw materials have seen an unwelcome increase in recent months which was reflected in the stronger-than-anticipated PPI data in January and February. Should this component continue to register higher prices, it raises concerns of a potential re-acceleration of inflationary pressures which could give further impetus to the dollar bulls and potentially limit the recent gains for gold.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Easter Monday Bank Holiday.
What can we expect from AUD today?
Australian markets are closed for today due to Easter Monday. The Aussie gapped higher at 0.6517 at the open this morning to rise strongly towards 0.6540. These are the key levels to keep an eye on for today – the first support lies at 0.6445 while the first resistance has been identified at 0.6596.
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
Easter Monday Bank Holiday.
What can we expect from NZD today?
Along with its Pacific neighbour, financial markets in New Zealand are also closed for Easter Monday. The Kiwi opened at 0.5975 this morning to climb strongly towards 0.6000. These are the key levels to keep an eye on for today – the first support lies at 0.5869 while the first resistance has been identified at 0.6052.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen came under some selling pressure last Friday as USD/JPY hit a session high of 151.46 before closing at 151.38. This currency pair gapped lower at the open, opening at 151.30 this morning before closing this gap, rising as high as 151.43. These are the key levels to keep an eye on for today – the first support lies at 148.63 while the first resistance has been identified at 153.39.
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
Medium Bearish
The Euro (EUR)
Key news events today
Easter Monday Bank Holiday.
What can we expect from EUR today?
After hitting a session high of 1.0806, the Euro came under selling pressure last Friday as it pulled back to close at 1.0793. This currency pair gapped slightly lower at the open this morning before proceeding to close it. These are the key levels to keep an eye on for today – the first support lies at 1.0663 while the first resistance has been identified at 1.0960.
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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
Easter Monday Bank Holiday.
What can we expect from CHF today?
The Swiss franc weakened significantly last week causing USD/CHF to hit a high of 0.9072 on Wednesday before pulling back to close at 0.9020 on Friday. These are the key levels to keep an eye on for today – the first support lies at 0.8895 while the first resistance has been identified at 0.9225.
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 Bearish
The Pound (GBP)
Key news events today
Easter Monday Bank Holiday.
What can we expect from GBP today?
After hitting a session high of 1.2645, the Pound came under some selling pressure last Friday as it pulled back to close at 1.2624. These are the key levels to keep an eye on for today – the first support lies at 1.2383 while the first resistance has been identified at 1.2796.
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
BoC Business Outlook Survey (2:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) will release its Business Outlook Survey for the first-quarter of 2023. The previous quarter’s findings showed that softer demand and renewed competitive pressures are slowly pushing down growth in output prices while concerns about labour shortages are receding but wage growth is expected to ease only gradually. Business activity and sentiment were both generally poor in the second half of 2023 but the latest survey could highlight a potential rebound. A brighter outlook combined with optimistic sentiment could strengthen the Loonie and potentially drive USD/CAD lower.
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
Medium Bearish
Oil
Key news events today
Caixin Manufacturing PMI (1:45 am GMT)
What can we expect from Oil today?
The Caixin Manufacturing PMI returned to expansion last November as output for this sector finally stabilized in the fourth-quarter of 2023. Business conditions continued to improve slightly in February as companies noted further upturns in both production and new work while business sentiment also brightened, with confidence around the year-ahead outlook for manufacturing output reaching a ten-month high. Should PMI for the month of March print higher than its estimate of 51.0, it will highlight the continued improvement for this sector which potentially signals higher demand for crude oil from the world’s third-largest economy.
Prices for crude oil rebounded in the second half of last week with WTI oil bouncing from $80.35 to close at $82.70 per barrel – this commodity opened at $82.90 this morning and could continue climbing higher as the day progresses.
Next 24 Hours Bias
Medium Bullish
