IC Markets Asia Fundamental Forecast | 3 February 2025 | IC Markets

IC Markets Asia Fundamental Forecast | 3 February 2025

What happened in the U.S. session?

The PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – showed headline PCE accelerating for the third consecutive month as it rose from 2.1% in September to 2.6% YoY in December, coming in line with estimates, while the core reading remained unchanged at 2.8% YoY, also for the third month in a row. Although the headline reading increased further in December, results came in line with all estimates providing some near-term relief for markets. Combined with a Chicago PMI which contracted for the 14th successive month, demand for the dollar initially waned as the dollar index (DXY) dropped a low of 107.78 on Friday. However, the dollar advanced following a reiteration from the White House that President Donald Trump will impose tariffs on Canadian and Mexican imports – the DXY reversed off its lows to close at 108.50 as it broke a 2-week downward streak to gain just over 1% on the week.

What does it mean for the Asia Session?

Following eight months of increased spending, retail sales in Australia declined 0.1% MoM in December as categories such as clothing, footwear, and personal accessories; and cafes, restaurants, and takeaway food experienced contractions. Despite the smaller-than-expected decline, the result points to weakening consumer spending and fuels expectations that the RBA may start cutting interest rates at the upcoming board meeting on 18th February. Combined with tariffs imposed on Canadian and Mexican imports into the U.S. by President Donald Trump over the weekend, demand for the dollar surged causing the Aussie to gap significantly lower as it opened at 0.6150 before diving as low as 0.6113 – this currency pair had closed at 0.6198 last Friday.

Following November’s 5-month high of 51.5, the Caixin Manufacturing PMI edged down to 50.5 in December, missing market estimates of 51.7. It marked the third straight month of growth in factory activity but both output and new orders expanded at slower rates while foreign orders shrank after increasing at the fastest pace for seven months in the prior month. January’s forecast of 50.6 points to a fourth successive month of expansion, albeit at a slower pace once more. Should the PMI activity show slower signs of growth, it could weigh on crude oil prices in the near- to medium-term.

The Dollar Index (DXY)

Key news events today

ISM Manufacturing PMI (3:00 pm GMT)

What can we expect from DXY today?

Manufacturing activity in the U.S. has contracted over the past nine months as reported by the Institute for Supply Management (ISM) with a reading of 49.3 in December. The forecasts for January point to an unchanged PMI figure highlighting the ongoing depressed levels of manufacturing output and could potentially create near-term headwinds for the dollar later today.

Central Bank Notes:

The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25 to 4.50% on 29 January.
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 the unemployment rate has stabilized at a low level in recent months, and labour market conditions remain solid. However, inflation remains somewhat elevated.
December’s Summary of Economic Projections (SEP) now indicates just two rate cuts in 2025 totalling 50 bps, compared to the full percentage point of reductions projected in the previous quarter.
GDP growth forecasts were revised upward for 2024 (2.5% vs. 2% in the September projection) and 2025 (2.1% vs. 2%), while remaining steady at 2% for 2026. Similarly, PCE inflation projections have been adjusted higher for 2024 (2.4% vs. 2.3%), 2025 (2.5% vs. 2.1%), and 2026 (2.1% vs. 2%).
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.
The Committee will roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month and redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
In addition, the Committee will reinvest the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding.
The next meeting runs from 18 to 19 March 2025.

Next 24 Hours Bias

Strong Bullish

Gold (XAU)

Key news events today

ISM Manufacturing PMI (3:00 pm GMT)

What can we expect from Gold today?

Next 24 Hours Bias

Medium Bearish

The Australian Dollar (AUD)

Key news events today

Retail Sales (12:30 am GMT)

What can we expect from AUD today?

Central Bank Notes:

The RBA kept the cash rate target unchanged at 4.35% on 10 December, marking the ninth 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. However, measures of underlying inflation are around 3.5%, which is still some way from the 2.5% midpoint of the inflation target.
The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026 but the Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts with risks remaining in place.
Growth in output has been weak as the economy grew by only 0.8% in the September quarter over the past year. Outside of the COVID-19 pandemic, this was the slowest pace of growth since the early 1990s.
A range of indicators suggest that labour market conditions remain tight; while those conditions have been easing gradually, some indicators have recently stabilised. The unemployment rate was 4.1 per cent in October, up from 3.5 per cent in late 2022.
Wage pressures have eased more than expected in the November SMP. The rate of wage growth as measured by the Wage Price Index was 3.5% over the year to the September quarter, a step down from the previous quarter, but labour productivity growth remains weak.
Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.
The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions, paying close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
The next meeting is on 18 February 2025.

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?

After rising over 3% in mid-January, the Kiwi posted its first decline in three weeks as it fell 1.1% to close at 0.5630 last Friday. This currency pair gapped lower this morning to open at 0.5580 before tumbling under 0.5550 at the beginning of the Asia session.

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 service 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 ease monetary policy restraint further.
The next meeting is on 19 February 2025.

Next 24 Hours Bias

Strong Bearish

The Japanese Yen (JPY)

Key news events today

S&P Global Manufacturing PMI (12:30 am GMT)

What can we expect from JPY today?

Japan’s manufacturing sector has contracted over the last six months with PMI activity expected to come in with a reading of 48.8 in January. Categories such as output fell the most since last April while new orders continued to drop, marking the fastest decline in six months. The yen appreciated over the past three weeks as USD/JPY declined 1.6% over this period. However, weak macroeconomic data combined with renewed demand for the dollar could lift this currency pair higher this week.

Central Bank Notes:

The Policy Board of the Bank of Japan decided on 24 January, by an 8-1 majority vote, to set the following guidelines for money market operations for the inter-meeting period:
1. The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.
2. 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.
Japan’s economy has recovered moderately, although some weakness has been seen in part. Exports and industrial production have been more or less flat while corporate profits have been on an improving trend and business sentiment has stayed at a favourable level.
The employment and income situation has improved moderately while private consumption has been on a moderately increasing trend despite the impact of price rises and other factors.
On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been at around 3% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have waned.
Inflation expectations have risen moderately while underlying CPI inflation has been increasing gradually toward the price stability target of 2%. With wages continuing to rise, there has been an increase in moves to reflect higher costs, such as increased personnel expenses and distribution costs, in selling 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 March 2025.

Next 24 Hours Bias

Strong Bullish

The Euro (EUR)

Key news events today

S&P Global Manufacturing PMI (9:00 am GMT)

Euro Area CPI (10:00 am GMT)

What can we expect from EUR today?

Manufacturing output in the Euro Area has been depressed since mid-2022 and January flash estimate showed a reading of 46.1 as output, new business and employment all continued to decline. The final PMI reading is anticipated to remain unchanged, highlighting the ongoing weakness in this sector. Meanwhile, the flash estimates for consumer inflation are expected to show headline CPI remaining unchanged at 2.4% YoY after accelerating for three successive months while the core is now expected to edge lower from 2.7% in the previous month to 2.6% in January. The Euro reversed sharply last week as it fell 1.1% and should macroeconomic data weaken further for this economic zone, additional headwinds could build for the Euro.

Central Bank Notes:

The Governing Council reduced the three key ECB interest rates by 25 basis points on 30 January to mark the fourth 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 2.90%, 3.15% and 2.75% respectively.
The disinflation process is well on track and inflation is set to return to the Governing Council’s 2% medium-term target in the course of this year. Most measures of underlying inflation suggest that inflation will settle at around the target on a sustained basis.
Staff see headline inflation averaging 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.
Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter – the economy is expected to grow by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027
The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.
The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises sustainably at its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.
The next meeting is on 6 March 2025.

Next 24 Hours Bias

Strong Bearish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

The franc weakened in the final week of January as USD/CHF stabilized around the threshold of 0.9000 last Monday before rising strongly to close at 0.9112, climbing 1.6% from its lowest point. This currency pair gapped higher this morning to open at 0.9143 and was ascending towards 0.9160 as Asian markets came online.

Central Bank Notes:

The SNB eased monetary policy by lowering its key policy rate by 50 basis points, going from 1.00% to 0.50% on 12 December, marking the fourth consecutive reduction.
Underlying inflationary pressure has decreased again this quarter.
Inflation in the period since the last monetary policy assessment has again been lower than expected as it decreased from 1.1% in August to 0.7% in November; both goods and services contributed to this decline.
In the shorter term, the new conditional inflation forecast is below that of September: 1.1% for 2024, 0.3% for 2025 and 0.8% for 2026, based on the assumption that the SNB policy rate is 0.5% over the entire forecast horizon.
GDP growth in Switzerland was only modest in the third quarter of 2024 with growth in the services sector again somewhat stronger, while value added in manufacturing declined.
There was a further slight increase in unemployment, and employment growth was subdued while the utilisation of overall production capacity was
normal.
The SNB anticipates GDP growth of around 1% this year while currently expecting growth of between 1.0% and 1.5% for 2025.
The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
The next meeting is on 20 March 2025.

Next 24 Hours Bias

Medium Bullish

The Pound (GBP)

Key news events today

S&P Global Manufacturing PMI (9:30 am GMT)

What can we expect from GBP today?

Manufacturing activity in the U.K. contracted in the final quarter of 2024 and the final estimate for January is expected to show a fourth month of decline as output, new orders and employment all continued to decline, based on the flash estimates. Should the final PMI reading for January print weaker than originally anticipated, the Pound could come under pressure during the European trading hours.

Central Bank Notes:

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 4.75% on 19 December 2024 – three members preferred to reduce the Bank rate by 25 basis points, bringing it down to 4.50%.
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. On 18 December 2024, the stock of UK government bonds held for monetary policy purposes was £655B.
Twelve-month CPI inflation had increased to 2.6% in November from 1.7% in September, slightly higher than previous expectations while services consumer price inflation had remained elevated, at 5.0%, while core goods price inflation had risen to 1.1%.
Headline CPI inflation was slightly higher than previous expectations, owing in large part to stronger inflation in core goods and food, and is expected to continue to rise slightly in the near term.
Most indicators of UK near-term activity have declined with Bank staff expecting GDP growth to be weaker at the end of the year than originally projected in the November Monetary Policy Report.
Bank staff now expected zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November Report, broadly consistent with the latest combined steer from business surveys and the available official data.
The Committee now judges that the labour market is broadly in balance as annual private sector regular average weekly earnings growth picked up quite sharply in the three months to October but there remains significant uncertainty around developments in the labour market.
Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. Over recent quarters there has been progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly.
The Committee continues to monitor closely the risks of inflation persistence and will assess the extent to which the evolving evidence is consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation; a gradual approach to removing monetary policy restraint remains appropriate.
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 and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
The next meeting is on 6 February 2025.

Next 24 Hours Bias

Medium Bearish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

Following a reiteration from the White House on Friday that President Donald Trump will impose tariffs on Canadian imports over the weekend, demand for the dollar surged causing USD/CAD to rally strongly past 1.4500 to hit an overnight high of 1.4559 before closing at 1.4537. This currency pair gapped higher this morning to open at 1.4722 before briefly dipping under 1.4700 at the beginning of the Asia session.

Central Bank Notes:

The Bank of Canada reduced its target for the overnight rate by 25 basis points bringing it down to 3% on 29 January; this marked the sixth consecutive meeting where rates were reduced.
The bank announced its plan to complete the normalization of its balance sheet, ending quantitative tightening, and will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.
Past cuts to interest rates have started to boost the economy and the recent strengthening in both consumption and housing activity is expected to continue. However, business investment remains weak while the outlook for exports is being supported by new export capacity for oil and gas.
The Bank forecasts GDP growth will strengthen in 2025 and now projects GDP will grow by 1.8% in both 2025 and 2026, somewhat higher than potential growth.
The labour market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing.
CPI inflation remains close to 2%, with some volatility due to the temporary suspension of the GST/HST on some consumer products. Shelter price inflation is still elevated but it is easing gradually, as expected
A broad range of indicators, including surveys of inflation expectations and the distribution of price changes among components of the CPI, suggests that underlying inflation is close to 2% with forecasts that CPI inflation will be around the 2% target over the next two years.
With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, the Governing Council decided to reduce the policy rate a further 25 basis points to support growth and keep inflation close to the middle of the 1-3% target range.
The cumulative reduction in the policy rate since last June is substantial as lower interest rates are boosting household spending and the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.
The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
The next meeting is on 12 March 2025.

Next 24 Hours Bias

Strong Bullish

Oil

Key news events today

Caixin Manufacturing PMI (1:45 am GMT)

OPEC-JMMC Meeting (All Day)

What can we expect from Oil today?

Meanwhile, the OPEC+ meeting will convene in Vienna, Austria, on Monday where key members such as Saudi Arabia, Russia and Iran will deliberate measures aiming to support the stability and balance of oil markets by making any potential voluntary adjustments to the production levels of each member country. Crude oil prices are likely to experience high volatility should any unexpected and/or additional adjustments are announced by the committee.

Next 24 Hours Bias

Medium Bearish

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