IC Markets Asia Fundamental Forecast | 24 April 2024
What happened in the US session?
The flash US Composite PMI for the month of April showed output growth slowing amidst signs of weakening demand, declining from 52.1 in the previous month to 50.9. After expanding for three straight months, the manufacturing PMI contracted once again with a reading of 49.9 versus its estimate of 52.0. Meanwhile, the services sector also slowed from 51.7 in the previous month to 50.9 missing its estimate of 52.0 as several service providers suggested that elevated interest rates and high prices had restricted demand in April.
Although the Composite PMI has expanded for 15 consecutive months, it was a weaker-than-anticipated reading which may cast some doubts about strong growth rates in the coming months. The dollar index (DXY) was trading above the 106-threshold but it tumbled quite strongly following the release of this PMI by S&P Global. The DXY dropped as low as 105.60 overnight before retracing higher towards 105.70 by the end of the US session.
What does it mean for the Asia Session?
Inflation in Australia was relatively stable with the monthly CPI indicator coming in at 3.4% YoY from December to February. However, the reading for March showed this monthly reading edging higher to 3.5% while the quarterly reading increased from 0.6% in the fourth quarter of 2023 to 1% in the first quarter of 2024, which was higher than the forecast of 0.8%. In short, this was a hot CPI print in the land down under which created strong tailwinds for the Aussie. This currency pair jumped above 0.6500 to rise as high as 0.6525 following this news release.
The Dollar Index (DXY)
Key news events today
Durable Goods Orders (12:30 pm GMT)
What can we expect from DXY today?
After declining in December and January, orders for durable goods rebounded in February rising 1.3% MoM. This momentum is expected to gain further traction as the forecast for March points to a significant gain of 2.5%. Should orders surprise market estimates, it could potentially function as a bullish catalyst for the dollar later today.
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
Medium Bearish
Gold (XAU)
Key news events today
Durable Goods Orders (12:30 pm GMT)
What can we expect from Gold today?
After declining in December and January, orders for durable goods rebounded in February rising 1.3% MoM. This momentum is expected to gain further traction as the forecast for March points to a significant gain of 2.5%. Should orders surprise market estimates, it could potentially function as a bullish catalyst for the dollar which would add further downward pressure on gold prices later today.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
CPI (1:30 am GMT)
What can we expect from AUD today?
Inflation in Australia was relatively stable with the monthly CPI indicator coming in at 3.4% YoY from December to February. However, the reading for March showed this monthly reading edging higher to 3.5% while the quarterly reading increased from 0.6% in the fourth quarter of 2023 to 1% in the first quarter of 2024, which was higher than the forecast of 0.8%. In short, this was a hot CPI print in the land down under which created strong tailwinds for the Aussie. This currency pair jumped above 0.6500 to rise as high as 0.6525 following this news release.
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?
A hot CPI print in Australia lifted the Kiwi as it briefly hit 0.5950 this morning. However, this initial jump was short-lived and NZD/USD pulled back to slide towards 0.5930. This currency pair could remain under pressure during the Asian and European trading hours.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Despite the ongoing weakness in the yen, USD/JPY has failed to break above the threshold of 155 since mid-April. This currency pair remains elevated as it was trading around 154.80 at the beginning of the Asia session. However, concerns on possible intervention measures by the Bank of Japan (BoJ) grow stronger the longer USD/JPY remains elevated causing traders to tread carefully with any long positions for this currency pair.
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 Bearish
The Euro (EUR)
Key news events today
German ifo Business Climate (8:00 am GMT)
What can we expect from EUR today?
Germany’s ifo Business Climate has rebounded quite strongly in the first quarter of 2024 as sentiment improved noticeably for the services, trade and construction sectors. The estimate of 88.9 points to further improvement in April and it could potentially function as a bullish catalyst for the Euro. This currency pair climbed above the threshold of 1.0700 overnight as a ‘soft’ US PMI report dampened demand for the dollar.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 2024.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
A weak franc continues to keep USD/CHF elevated as it hovered around 0.9115 at the beginning of the Asia session. This currency pair has ranged approximately between 0.9080 and 0.9145 since mid-April and it is likely to extend this sideways price action today.
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
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Yesterday’s flash Composite PMI for the UK showed business activity expanding at the fastest rate since May 2023. The services sector indicated a robust and accelerated rise in business activity while manufacturing production declined slightly in April. In addition, cost pressures intensified as input price inflation accelerated sharply – this marked the strongest increase in 11 months. The Pound initially jumped as high as 1.2388 following the release of this flash PMI result but it reversed before finally resuming the uptrend as a ‘soft’ US PMI report dampened demand for the dollar overnight.
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
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
Retail Sales (12:30 pm GMT)
What can we expect from CAD today?
After declining 0.3% in January, Canada’s retail sales are expected to rebound slightly in February. The forecast points to a meagre gain of 0.1% MoM and should sales surprise markets to the upside, the Loonie could potentially receive a boost and drive USD/CAD lower during the US session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API stockpiles surprised market expectations of a 1.8M build by having 3.2M barrels of crude taken from storage, signalling stronger-than-expected demand for oil in the US. Combined with a weaker dollar, prices for crude oil rebounded with WTI oil hitting a high of $84.12 per barrel overnight. Should the EIA inventories also point to large drawdown in stock levels, it is likely to function as an additional bullish catalyst for oil later today.
Next 24 Hours Bias
Weak Bullish
