IC Markets Asia Fundamental Forecast | 18 March 2024
What happened in the US session?
The Empire State Manufacturing Index continues to show business activity declining in the state of New York as the index fell 19 points to -20.9 which was much worse than the estimate of a 7-point decline. Demand softened as new orders declined significantly while shipments were lower – manufacturing activity continues to remain under pressure in the US.
Meanwhile, the preliminary findings of the Consumer Sentiment survey for the month of March by the University of Michigan (UoM) were relatively unchanged and have stabilized after posting strong gains between November 2023 and January 2024. Year-ahead inflation was unchanged at 3.0% from the previous month but this could edge higher in the following months especially after last week’s CPI and PPI data which highlighted a potential acceleration in prices for the respective indices.
The dollar index (DXY) hovered above 103.40 for most of the US session before closing at 103.44 last Friday. Hot inflation data helped the DXY to buck the three-week downtrend as it reversed strongly off 102.70 to gain 0.7% or 74 pips in the process – this was the first gain in four weeks.
What does it mean for the Asia Session?
China will release its industrial production figures for the month of January. Following relatively strong growth in November and December, the latest reading is expected to show production increasing at a slower rate, dropping from 6.8% to 5.3% YoY. Should industrial production surprise to the upside, it could function as a potential tailwind for crude oil. Following last week’s strong gains with WTI oil rising 3.9% to close above $81 per barrel, prices are expected to remain elevated as the new trading week gets under way.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The DXY opened at 103.44 today and strong tailwinds could continue to build this week, especially after last week’s hotter-than-anticipated CPI and PPI data which showed prices increasing for the second consecutive month in the US. Dollar bulls have returned in full force and we could see another green week for this index.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fourth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- 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. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- 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 19 to 20 March 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Stronger inflation data out of the US drove gold lower last week as it retreated away from its all-time high of $2,196.31/oz. This precious metal pulled back quite strongly to close at $2,155.54/oz on Friday – it opened at $2,153.31/oz and is likely to resume the downtrend as the new trading week gets under way.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Hot US inflation hit the Aussie hard last week as this currency pair dived 1% to fall 70 pips as it closed at 0.6561 last Friday. The Aussie opened at 0.6564 and although overhead pressures remain, it was retracing higher as Asian markets came online.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi was one of the worst-performing currency pairs last week as it tumbled 1.5% shedding 110 pips in the process as it closed at 0.6084 last Friday. It opened at 0.6090 and was edging lower towards 0.6070 at the beginning of the Asia session.
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?
Stronger inflation data out of the US lifted USD/JPY last week as it gained 1.3% or 200 pips to climb above 149. This currency pair opened at 149.01 and climbed towards 149.30 as Asian markets came online.
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
Medium Bullish
The Euro (EUR)
Key news events today
CPI (10:00 am GMT)
What can we expect from EUR today?
The final reading for the Eurozone CPI is expected to show inflation continuing to moderate lower. Headline and core CPI for the month of February are both anticipated to rise at a slower rate, highlighting the ongoing deceleration in prices. Combined with hot inflation data from the US last week, the Euro could once again come under selling pressures today.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc saw significant inflows in the first week of March causing USD/CHF to fall sharply losing 0.7% or nearly 70 pips in the process. However, stronger inflation data out of the US saw demand for the dollar return in a big way to lift USD/CHF last week. This currency pair recovered from the previous week’s loss to close at 0.8838 last Friday – it opened at 0.8832 and could continue its ascend today.
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
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
After hitting a high of 1.2985 in the first week of March, GBP/USD reversed strongly to close at 1.2735 last Friday losing nearly 1% or 150 pips in the process. This currency pair opened at 1.2733 and could slide lower as the day progresses.
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% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
IPPI (12:30 pm GMT)
RMPI (12:30 pm GMT)
What can we expect from CAD today?
February’s estimates for the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) suggest a pickup in prices for the respective indices. Should the IPPI and RMPI post a higher-than-anticipated rise, it could potentially trigger some demand for the Loonie and cause USD/CAD to pull back later today. This currency pair opened at 1.3536 and edged higher at the beginning of the Asia session.
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 Bullish
Oil
Key news events today
China Industrial Production (2:00 am GMT)
What can we expect from Oil today?
China will release its industrial production figures for the month of January. Following relatively strong growth in November and December, the latest reading is expected to show production increasing at a slower rate, dropping from 6.8% to 5.3% YoY. Should industrial production surprise to the upside, it could function as a potential tailwind for crude oil. Following last week’s strong gains with WTI oil rising 3.9% to close above $81 per barrel, prices are expected to remain elevated as the new trading week gets under way.
Next 24 Hours Bias
Medium Bullish
