IC Markets Asia Fundamental Forecast | 10 December 2024
What happened in the U.S. session?
It was a barren calendar during the U.S. trading hours as the dollar index (DXY) initially drifted lower towards 105.80 before reversing to climb above 106 to hit an overnight high of 106.21 while spot prices for gold retreated from Monday’s peak of $2,676.39/oz, falling towards $2,655/oz. Crude oil prices headed south as well with WTI oil falling under the $68-mark by the end of this session.
What does it mean for the Asia Session?
The Reserve Bank of Australia (RBA) is widely expected to maintain its cash rate at 4.35% today, a move that would mark the ninth consecutive pause. Although the monthly CPI indicator fell to 2.1% YoY in September and October, the annual inflation rate eased to just 2.8% YoY in the third quarter of 2023 – a reading that is still some way from the midpoint inflation target of 2.5%. Traders will also be keeping a close watch on the press conference by RBA Governor Michele Bullock where her remarks and responses could inject higher volatility for the Aussie during the Asia session.
The Dollar Index (DXY)
Key news events today
NFIB Small Business Index (11:00 am GMT)
What can we expect from DXY today?
The NFIB Small Business Index increased to 93.7 in October to mark the highest reading in three months but small business owners still faced unprecedented economic adversity. With the U.S. presidential elections concluding in early November, small business owners began to feel less uncertain about future business conditions. This improved sentiment is reflected in November’s forecast of 94.6 and a stronger-than-anticipated reading could bolster the dollar later today.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to lower the Federal Funds Rate target range by 25 basis points to 4.50% to 4.75% on 7th November.
- 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 roughly in balance.
- The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while labour market conditions have generally eased, and the unemployment rate has moved up but remains low.
- Inflation has made further progress toward the Committee’s 2% objective but remains somewhat 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.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- The next meeting runs from 17 to 18 December 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
NFIB Small Business Index (11:00 am GMT)
What can we expect from Gold today?
The NFIB Small Business Index increased to 93.7 in October to mark the highest reading in three months but small business owners still faced unprecedented economic adversity. With the U.S. presidential elections concluding in early November, small business owners began to feel less uncertain about future business conditions. This improved sentiment is reflected in November’s forecast of 94.6 and a stronger-than-anticipated reading could bolster the dollar and place downward pressure on gold prices later today.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Statement (3:30 am GMT)
RBA Press Conference (4:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) is widely expected to maintain its cash rate at 4.35% today, a move that would mark the ninth consecutive pause. Although the monthly CPI indicator fell to 2.1% YoY in September and October, the annual inflation rate eased to just 2.8% YoY in the third quarter of 2023 – a reading that is still some way from the midpoint inflation target of 2.5%. Traders will also be keeping a close watch on the press conference by RBA Governor Michele Bullock where her remarks and responses could inject higher volatility for the Aussie during the Asia session.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35% on 5th November, marking the eighth consecutive pause.
- Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but the forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.
- Headline inflation was 2.8% over the year to the September quarter, down from 3.8% over the year to the June quarter; this was as expected due to declines in fuel and electricity prices in the September quarter.
- However, this decline reflects a temporary cost of living relief; abstracting from these effects, underlying inflation (as represented by the trimmed mean) was 3.5% over the year to the September quarter and is still some way from the 2.5% midpoint of the inflation target.
- Growth in output has been weak as past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption.
- However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, has remained more resilient.
- A range of indicators suggest that labour market conditions remain tight, and while conditions have been easing gradually, some indicators have recently stabilised.
- Employment grew strongly over the three months to September, by an average of 0.4% per month but the unemployment rate was 4.1% in September, up from the trough of 3.5% in late 2022.
- While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high while the November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.
- This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
- Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range and it will continue to rely upon the data and the evolving assessment of risks to guide its decisions.
- The next meeting is on 10 December 2024.
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 Kiwi failed to climb above 0.5900 on Monday as it retreated away from this level to slide towards 0.5850 during the U.S. trading hours. This currency pair remains under pressure and continues to edge lower at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.5800
Resistance: 0.5885
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 50 basis points bringing it down to 4.25% on 27 November, marking the third consecutive rate cut.
- The Committee assessed that annual consumer price inflation has declined and is now close to the midpoint of the MPC’s 1 to 3% target band; inflation expectations are also close to target and core inflation is converging to the midpoint.
- Economic activity remains subdued and output continues to be below its potential. With excess productive capacity in the economy, inflation pressures have eased. If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR further early next year.
- Domestic economic activity remains below trend, as a result of weakness in demand for durable goods consumption and investment. This has been reflected in falling activity in interest rate sensitive sectors such as construction, manufacturing, and retail trade. In contrast, some services sectors have continued to grow.
- Consistent with feedback from business visits, high frequency indicators suggest that the economy has stabilised in recent months. Economic growth is expected to recover from the December quarter, in part due to lower interest rates, but there is uncertainty around the exact timing and speed of the recovery.
- Wage growth is slowing, consistent with inflation returning to the target midpoint while employment levels and job vacancies have declined, reflecting subdued economic activity; unemployment is expected to continue rising in the near term.
- Expectations of future inflation, the pricing intentions of firms, and spare productive capacity are consistent with the inflation target being sustainably achieved, providing the context and the confidence for the Committee to further ease monetary policy restraint.
- The next meeting is on 19 February 2025.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Higher demand for the dollar lifted USD/JPY from 149.80 to an overnight high of 151.36. This currency pair remained elevated as Asian markets came online – these are the support and resistance levels for today.
Support: 151.15
Resistance: 152.20
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 31st October, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%.
- The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be at around 2.5% for fiscal 2024 and then be at around 2% for fiscal 2025 and 2026.
- While the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged. The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is somewhat lower due to factors such as the recent decline in crude oil and other resource prices.
- Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- The next meeting is on 19 December 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
As demand for the greenback picked up during the U.S. trading hours, the Euro reversed from 1.0595 to fall to an overnight low of 1.0545. This currency pair was floating around 1.0555 as Asian markets came online – these are the support and resistance levels for today.
Support: 1.0480
Resistance: 1.0610
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 17th October to mark the second successive rate cut.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 3.40%, 3.65% and 3.25% respectively.
- The incoming information on inflation shows that the disinflationary process is well on track while the inflation outlook is also affected by recent downside surprises in indicators of economic activity.
- Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- The next meeting is on 12 December 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?
A weak franc kept USD/CHF above 0.8750 on Monday, trading within a relatively narrow range. This currency pair was hovering around 0.8780 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8750
Resistance: 0.8830
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the third consecutive meeting, going from 1.25% to 1.00% in September.
- Inflationary pressure has again decreased significantly compared to the previous quarter, reflecting the appreciation of the Swiss franc over the last three months.
- Inflation in the period since the last monetary policy assessment was lower than expected, standing at 1.1% in August compared to 1.4% in May.
- The new conditional inflation forecast is significantly lower than that of June: 1.2% for 2024, 0.6% for 2025 and 0.7% for 2026, based on the assumption that the SNB policy rate is 1.0% over the entire forecast horizon.
- Swiss GDP growth was solid in the second quarter of 2024 as momentum in the chemicals/pharmaceuticals industry was particularly strong.
- However, growth is likely to remain rather modest in the coming quarters due to the recent appreciation of the Swiss franc and the moderate development of the global economy.
- The SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.
- The next meeting is on 12 December 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Cable came within a whisker of 1.2800 overnight before retreating to slide lower. This currency pair was dipped under 1.2750 as Asian markets came online – these are the support and resistance levels for today.
Support: 1.2715
Resistance: 1.2865
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to reduce the Bank Rate by 25 basis points, to 4.75% on 7th November 2024 – one member preferred to maintain the Bank rate at 5.0%.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B, starting in October 2024.
- Twelve-month CPI inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year as weakness in energy prices falls out of the annual comparison; services consumer price inflation has declined to 4.9%.
- CPI inflation is expected to increase to around 2.75% by the second half of 2025 as weakness in energy prices falls out of the annual comparison, revealing more clearly the continuing persistence of domestic inflationary pressures.
- The MPC’s latest projections for activity and inflation are also set out in the accompanying November Report; this forecast is based on the second case where CPI inflation is projected to fall back to around the 2% target in the medium term as a margin of slack emerges later in the forecast period that acts against second-round effects in domestic prices and wages.
- GDP had grown by 0.5% in 2024 Q2, 0.2% weaker than had been expected in the August Report, and 0.1% weaker than the earlier outturn had indicated at the time of the MPC’s previous meeting. Through the second half of 2024, GDP was projected to grow at a somewhat slower rate than in Q2 – headline GDP growth is expected to fall back to its recent underlying pace of around 0.25% per quarter over the second half of this year.
- The combined effects of the measures announced in Autumn Budget 2024 are provisionally expected to boost the level of GDP by around 0.75% at their peak in a year’s time, relative to the August projections, while the Budget is provisionally expected to boost CPI inflation by just under 0.5% at the peak.
- Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August; the MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.
- Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate but monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
- The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- The next meeting is on 19 December 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 Loonie continues to face overhead pressure causing USD/CAD to remain elevated. This currency pair was rising towards 1.4180 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.4100
Resistance: 1.4200
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 50 basis points bringing it down to 3.75% while continuing its policy of balance sheet normalization on 23rd October; this marked the fourth consecutive meeting where rates were reduced.
- Canada’s economy grew at around 2% in the first half of the year and growth of 1.75% is expected in the second half; consumption has continued to grow but is declining on a per person basis while exports have been boosted by the opening of the Trans Mountain Expansion pipeline.
- Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026 – as the economy strengthens, excess supply is gradually absorbed.
- The labour market remains soft with unemployment at 6.5% in September while wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply.
- Headline CPI has declined significantly from 2.7% in June to 1.6% in September while shelter costs inflation remains elevated but has begun to ease; the preferred measures of core inflation are now below 2.5%.
- Excess supply elsewhere in the economy has reduced inflation in the prices of many goods and services while the drop in global oil prices has led to lower gasoline prices – these factors have all combined to bring inflation down.
- The Bank expects inflation to remain close to the target over the projection horizon, with the upward and downward pressures on inflation roughly balancing out; the upward pressure from shelter and other services gradually diminishes, and the downward pressure on inflation recedes as excess supply in the economy is absorbed.
- With inflation now back around the 2% target, the Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range.
- If the economy evolves broadly in line with the latest forecast, further reduction of the policy rate can be expected but the timing and pace of additional reductions in the policy rate will be guided by incoming information and assessment of its implications for the inflation outlook.
- The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- The next meeting is on 11 December 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
OPEC Meetings (All Day)
API Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
The OPEC meetings, which usually take place twice a year, will commence today in Vienna where representatives from the 12 oil-rich nations will discuss a wide range of issues regarding energy markets and, most importantly, agree on oil production quotas for each member country. Crude oil prices retreated from Monday’s highs as WTI oil fell under the $68-mark on Monday. The API stockpiles registered a surprise inventory build last week and should markets receive a second successive week of higher storage levels, oil prices could face some headwinds later today.
Next 24 Hours Bias
Weak Bullish
