IC Markets Asia Fundamental Forecast | 2 April 2024
What happened in the US session?
After contracting over the past 16 months, the ISM Manufacturing index finally swung into expansion with a reading of 50.3 which was much higher than the estimate of 48.5 as well as the previous month’s figure of 47.8. This uptick in manufacturing activity was led by increases in production, new orders and new export orders.
Meanwhile, the prices index also rose strongly for the third consecutive month to record its highest level since July 2022. This increase in raw materials is likely to feed into the upcoming CPI and PPI which would raise concerns on inflation re-accelerating in the US. The stronger-than-expected ISM report provided a strong boost for the dollar index (DXY) as it jumped from 104.70 to a session high of 105.07.
What does it mean for the Asia Session?
Australia will release its minutes for the monetary policy meeting that took place on 20th March. The Reserve Bank of Australia’s (RBA) statement had switched to a dovish outlook and should the minutes point to further dovishness by Governor Michele Bullock and the other board members, the Aussie could potentially face strong selling pressures this morning.
The Dollar Index (DXY)
Key news events today
JOLTS Job Openings (2:00 pm GMT)
FOMC Member Mester Speaks (4:05 pm GMT)
What can we expect from DXY today?
The JOLTS Job Openings have stabilized over the last couple of months after falling quite significantly since March 2022 – falling openings reflect less aggressive hiring practices by US corporations which could signal a potential saturation of the labour market. Should February’s reading print higher than the estimate of 8.76M, it may function as a potential bullish catalyst for the dollar.
Federal Reserve Bank of Cleveland President Loretta Mester is due to speak about the economic outlook at the Cleveland Association for Business Economics where audience questions are expected. Following a stronger-than-anticipated ISM report as well as the recent sticky inflation data, President Mester may push back against any premature talk of interest rate cuts which could potentially keep the dollar elevated.
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
Weak Bullish
Gold (XAU)
Key news events today
JOLTS Job Openings (2:00 pm GMT)
FOMC Member Mester Speaks (4:05 pm GMT)
What can we expect from Gold today?
The JOLTS Job Openings have stabilized over the last couple of months after falling quite significantly since March 2022 – falling openings reflect less aggressive hiring practices by US corporations which could signal a potential saturation of the labour market. Should February’s reading print higher than the estimate of 8.76M, it may function as a potential bullish catalyst for the dollar.
Federal Reserve Bank of Cleveland President Loretta Mester is due to speak about the economic outlook at the Cleveland Association for Business Economics where audience questions are expected. Following a stronger-than-anticipated ISM report as well as the recent sticky inflation data, President Mester may push back against any premature talk of interest rate cuts which could potentially keep the dollar elevated and put downward pressure on gold.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (12:30 am GMT)
What can we expect from AUD today?
Australia will release its minutes for the monetary policy meeting that took place on 20th March. The Reserve Bank of Australia’s (RBA) statement had switched to a dovish outlook and should the minutes point to further dovishness by Governor Michele Bullock and the other board members, the Aussie could potentially face strong selling pressures this morning.
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
No major news events.
What can we expect from NZD today?
New Zealand markets re-opened today with the Kiwi trading around 0.5950. This currency pair has been in a strong downtrend since the 8th of March and it is likely to slide lower today – the first support has been identified at 0.5940 while the first resistance is situated at 0.5960.
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 has weakened significantly in the first quarter of 2024 causing USD/JPY to rise strongly and trade around the 152-level over the last couple of weeks. With a return of the dollar bulls, this currency pair is likely to remain elevated today.
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
Weak Bullish
The Euro (EUR)
Key news events today
S&P Global Manufacturing PMI (8:00 am GMT)
What can we expect from EUR today?
Manufacturing activity in the Eurozone has remained in contraction territory since July 2022 to highlight the deteriorating conditions. March’s preliminary result of 45.7 showed this index falling to a three-month low with job-losses falling at the largest pace since August 2020. The final PMI estimate points to an unchanged figure and the Euro is likely to slide lower 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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
Retail Sales (6:30 am GMT)
What can we expect from CHF today?
Following six months of falling sales, retail sales figures in Switzerland returned to growth in January by growing 0.3% YoY. Sales are expected to edge higher in February with the estimate pointing to an increase of 0.4%. The Swiss franc has weakened significantly in recent weeks but stronger-than-expected sales figures could cap the gains for USD/CHF during the Europe session.
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
S&P Global Manufacturing PMI (8:30 am GMT)
What can we expect from GBP today?
Although still in contraction territory, manufacturing activity in the UK has picked up in recent months as new orders for manufacturers booked the fastest expansion since May 2022 to prompt factories to increase production levels for the first time in one year. The Pound has fallen in recent weeks but could find some support during the Europe session should the final PMI result for March beat market expectations.
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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The return of the dollar bulls has kept USD/CAD elevated in recent weeks and received another boost from a stronger-than-expected ISM report overnight. This currency pair was trading around 1.3580 as Asian markets came online and it is likely to climb higher as the day progresses.
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
API Crude Oil Stocks (8:30 pm GMT)
What can we expect from Oil today?
A stronger-than-anticipated ISM manufacturing report boosted crude oil prices overnight with WTI oil hitting a session high of $84.86 per barrel. This commodity has rebounded strongly since last Wednesday and should the API stockpiles register a larger-than-expected drawdown, it could potentially provide an additional catalyst for oil prices to climb higher.
Next 24 Hours Bias
Medium Bullish
