IC Markets Asia Fundamental Forecast | 12 January 2022

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What happened in the US session?

US Federal Reserve chief Powell reiterated expectations of the rate hikes in 2022, one of the tools being used to fight inflation, and stated that a balance sheet runoff may come later in the year.

What does it mean for the Asia Session?

The US dollar is likely to stay under pressure following a relative dovish take on the balance sheet by Fed Chair Powell as traders probably priced in a more aggressive stance. The upcoming month-on-month US CPI (expected 0.4%, prev. 0.8%) could turn the tables in favour of the greenback.

The Dollar Index (DXY)

Key news events today

CPI m/m, 1330 GMT

Core CPI m/m, 1330 GMT

What can we expect from DXY today?

Fed speak from policymakers Bostic, Mester and George ran along the lines of the hawks, notably with Bostic highlighting a risk of four rate hikes in 2022. The market consensus is three rate hikes by the central bank this year.

Central Bank Notes:

  • Taper pace increased to US30 billion from January; end in March 2022
  • Emphasised clear divide between tapering and rate lift-off
  • Next meeting on 26 January 2022

Next 24 Hours Bias

Weak bullish

Gold (XAU)

Key news events today

No major news events. 

What can we expect from Gold today?

Following the comments from Fed Chair Powell on a balance sheet runoff possibility only later in the year, the relatively dovish statement helped the precious metal to bounce off $1,800 as investors priced in firmer tightening after the release of the FOMC Minutes from the December meeting

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?

November Retail Sales were up 7.3%, much better than the 3.9% expected. Gains on the Aussie are likely to be capped, however, amid the bleak Omicron development in the country, with infections hovering near record highs. 

Central Bank Notes:

  • Kept Cash Rate at 0.1%. and weekly bond purchases of AUD 4 billion per week until mid-February 2022.
  • A slower progress towards employment and inflation goals warrants a taper in February and review again in May.
  • Consider to raise rates only until actual inflation is sustainably within the 2%-3% target range. 
  • Next meeting on 1 February 2022

Next 24 Hours Bias

Weak bearish

The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

The overarching RBNZ monetary policy directives and relatively less severe Omicron situation in New Zealand is likely to see the Kiwi take over as the leader among the antipodeans.

Central Bank Notes:

  • Need to raise OCR to 2.6% by 2024, pending economic outlook
  • Downgrades GDP in 2022 and unemployment rate; upgrades to CPI and GDP in 2023
  • Considered a 50bps rate hike at the latest meeting but sees 25bp as a steady approach
  • Next meeting on 23 February 2022

Next 24 Hours Bias

Weak Bullish

The Japanese Yen (JPY)

Key news events today

No major news events.

What can we expect from JPY today?

According to a quarterly survey from the Bank of Japan, expectations of inflation in Japan, rose for 2023 and five years from now. However, the BoJ’s ultra-accommodative monetary policy directives should continue to weigh on the yen.

Central Bank Notes:

  • Retains its ultra-accommodative strategy
  • To scale back emergency pandemic relief funding from March 
  • Japan’s economy has picked up it does still remain in a severe situation due to the COVID-19.
  • Next meeting on 17 January 2022

Next 24 Hours Bias

Weak Bearish