IC Markets Asia Fundamental Forecast | 5 February 2024
What happened in the US session?
Non-farm payrolls (NFPs) soundly beat market expectations of 187k by reporting massive job gains of 353k in January while December’s figures were revised significantly higher from 216k to 333k. Meanwhile, the unemployment rate remained unchanged at 3.7%, which was lower than the market estimate of 3.8%. The largest gains were seen in the professional and business services, health care, retail trade, and social assistance sectors.
In short, it was an extremely strong jobs report that sent the dollar index (DXY) surging past 104 before closing at 103.96 last Friday. As expected, huge demand for the dollar sent gold tumbling with spot prices diving 0.75% to fall under $2,030/oz before settling around $2,040/oz – this was the largest daily decline since the third week of January for this precious metal.
What does it mean for the Asia Session?
During his interview on CBS News 60 Minutes, Federal Reserve Chairman Jerome Powell discussed the US economy and inflation risks where he reiterated the Fed’s pushback against aggressive interest rate cuts, as evident in last week’s FOMC statement and press conference, by stating that policymakers are likely to wait beyond March before cutting rates. Combined with last Friday’s blowout NFP job gains, demand for the greenback is robust.
Crude oil prices suffered their worst drop since October 2023 with WTI oil tumbling nearly 7.4% – it was trading around $72.40 per barrel as Asian markets came online. Meanwhile, the Caixin Composite PMI is likely to confirm a second consecutive month of expansion for this Asian giant and a stronger-than-expected figure could signal continued growth, spurring a potential increase in demand for crude oil.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Speaks (12:00 am GMT)
ISM Services PMI (3:00 pm GMT)
What can we expect from DXY today?
During his interview on CBS News 60 Minutes, Federal Reserve Chairman Jerome Powell discussed the US economy and inflation risks where he reiterated the Fed’s pushback against aggressive interest rate cuts, as evident in last week’s FOMC statement and press conference, by stating that policymakers are likely to wait beyond March before cutting rates. Combined with last Friday’s blowout NFP job gains, demand for the greenback is robust.
The ISM Services PMI has signalled expansion for 12 consecutive months and the estimate of 52.0 for the month of January shows this trend continuing. New orders – a sign of future business activity – have also expanded over the same period while the prices index continues to increase as well. The services sector has pulled up overall economic growth in the US and a stronger-than-expected PMI reading is likely to make the Fed be even more patient with any potential interest rate cuts.
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
Fed Chair Powell Speaks (12:00 am GMT)
ISM Services PMI (3:00 pm GMT)
What can we expect from Gold today?
During his interview on CBS News 60 Minutes, Federal Reserve Chairman Jerome Powell discussed the US economy and inflation risks where he reiterated the Fed’s pushback against aggressive interest rate cuts, as evident in last week’s FOMC statement and press conference, by stating that policymakers are likely to wait beyond March before cutting rates. Combined with last Friday’s blowout NFP job gains, demand for the greenback is robust.
The ISM Services PMI has signalled expansion for 12 consecutive months and the estimate of 52.0 for the month of January shows this trend continuing. New orders – a sign of future business activity – have also expanded over the same period while the prices index continues to increase as well. The services sector has pulled up overall economic growth in the US and a stronger-than-expected PMI reading is likely to make the Fed be even more patient with any potential interest rate cuts – a move that is likely to weigh on gold prices.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Trade Balance (12:30 am GMT)
What can we expect from AUD today?
Australia’s trade surplus on goods increased to A$11.4B in November 2023 to mark the largest trade surplus since March 2023. Exports rose, led by outbound shipments to the country’s largest trading partner, China. Should the trade surplus continue to widen in December, it could provide a much-needed short-term boost for the Aussie.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 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?
Stronger-than-expected non-farm payrolls (NFPs) caused the Kiwi to dive strongly last Friday. This currency opened around 0.6070 this morning and is likely to remain under pressure today as the new trading week gets underway.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Stronger-than-expected non-farm payrolls (NFPs) caused USD/JPY to surge past 148.50 before settling around 148.30 last Friday. This currency pair is likely to climb higher today as the new trading week gets underway.
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
Composite PMI (9:00 am GMT)
What can we expect from EUR today?
The Euro bucked four weeks of decline to rebound strongly in the final week of January. Combined with stronger-than-expected non-farm payrolls (NFPs) in the US, the Euro dived strongly to fall under 1.0800 last Friday.
The Composite PMI reading for the month of January will be released today and it is likely to confirm an eight consecutive month of contraction in the Eurozone, which could put further downward pressure on this currency.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 7 March 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?
Stronger-than-expected non-farm payrolls (NFPs) caused USD/CHF to hit a high of 0.8680 before settling around 0.8665 last Friday. Tailwinds remain for this currency pair and it is likely to climb higher as the day progresses.
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
Composite PMI (9:30 am GMT)
What can we expect from GBP today?
The Composite PMI reading for the month of January will be released today and it is likely to confirm a third consecutive month of expansion for the UK, which could provide a much-needed lift for the Pound. This currency opened around 1.2630 this morning and is likely to remain under pressure today as the new trading week gets under way.
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
Strong Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Stronger-than-expected non-farm payrolls (NFPs) in the US drove USD/CAD to hit a high of 1.3475 before settling around 1.3465 last Friday. Tailwinds remain for this currency pair and it is likely to rise further 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 has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- 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
Caixin Composite PMI (1:45 am GMT)
What can we expect from Oil today?
Crude oil prices suffered their worst drop since October 2023 with WTI oil tumbling nearly 7.4% – it was trading around $72.40 per barrel as Asian markets came online. Meanwhile, the Caixin Composite PMI is likely to confirm a second consecutive month of expansion for this Asian giant and a stronger-than-expected figure could signal continued growth, spurring a potential increase in demand for crude oil.
Next 24 Hours Bias
Medium Bearish
