IC Markets Asia Fundamental Forecast | 31 January 2025 | IC Markets

IC Markets Asia Fundamental Forecast | 31 January 2025

What happened in the U.S. session?

As widely expected, the ECB lowered its key interest rates by 25 basis points (bps) on Thursday, reducing the deposit facility rate to 2.75%, the main refinancing rate to 2.90%, and the marginal lending rate to 3.15%. This latest move reflects the ECB’s updated inflation outlook, with price pressures easing in line with projections. However, domestic inflation remains elevated due to delayed wage and price adjustments. During her press conference, ECB President Christine Lagarde stated that the economy is set to remain weak in the near term but conditions for a recovery remain in place. The labour market remains robust while longer-term inflation expectations continue to stand at around 2%. President Lagarde also touched on the impact of tariffs imposed on the Euro Area, saying that if trade tensions do not escalate, exports should support recovery as global demand rises. The Euro initially surged upon the release of the statement, hitting an overnight high of 1.0467 before reversing sharply to dive towards 1.0420 as the press conference commenced.

What does it mean for the Asia Session?

Following the increase in core inflation as reported by the Bank of Japan (BoJ) earlier this week, the Tokyo Core CPI is expected to edge higher in January. This inflation metric had accelerated from 1.8% in October to 2.4% YoY in December, highlighting broadening price pressures and providing further justification for the latest interest rate hike that took place last week. The yen could receive another boost should inflation continue to come in ‘hot’ in the land of the rising sun, putting downward pressure on USD/JPY.

The Dollar Index (DXY)

Key news events today

PCE Price Index (1:30 pm GMT)

Chicago PMI (2:45 pm GMT)

What can we expect from DXY today?

The PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – showed headline PCE accelerating for the second consecutive month as it rose from 2.1% in September to 2.4% YoY in November while the core reading remained unchanged at 2.8% YoY. The forecasts for December point to a further increase in the headline PCE, climbing to 2.6% while the core is once again anticipated to hold steady. Should inflationary pressures continue to build, demand for the dollar could rekindle later today.

Meanwhile, the Chicago PMI continues to highlight weak economic growth as PMI activity contracted for the 13th consecutive month in December, recording its steepest decline since May – the decline was primarily driven by a fall in new orders and production. PMI activity is anticipated to edge higher in January but still remain in contraction. Volatility for the dollar is likely to increase during the U.S. session.

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

Medium Bullish

Gold (XAU)

Key news events today

PCE Price Index (1:30 pm GMT)

Chicago PMI (2:45 pm GMT)

What can we expect from Gold today?

Meanwhile, the Chicago PMI continues to highlight weak economic growth as PMI activity contracted for the 13th consecutive month in December, recording its steepest decline since May – the decline was primarily driven by a fall in new orders and production. PMI activity is anticipated to edge higher in January but still remain in contraction. Volatility for gold is likely to increase during the U.S. session, particularly following the release of the PCE Price Index.

Next 24 Hours Bias

Medium Bullish

The Australian Dollar (AUD)

Key news events today

No major news events.

What can we expect from AUD today?

The Aussie marked its fourth consecutive day of decline as it briefly tumbled under the threshold of 0.6200 on Thursday. However, this currency pair stabilized around this threshold as Asian markets came online on Friday, edging higher towards 0.6220. However, overhead pressures remain in place and the Aussie is all but certain to register its first decline in three weeks.

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

Medium Bearish

The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

Like its Pacific neighbour, the Kiwi has fallen strongly this week as it dropped as low as 0.5622 on Thursday. This currency pair appeared to have found its footing at the beginning of the Asia session on Friday but strong headwinds remain in place.

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

Medium Bearish

The Japanese Yen (JPY)

Key news events today

Tokyo Core CPI (11:30 pm GMT 30th January)

What can we expect from JPY today?

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

Medium Bearish

The Euro (EUR)

Key news events today

Germany CPI (Tentative)

What can we expect from EUR today?

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

Weak Bearish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Demand for the greenback picked up this week, aided by the Federal Reserve’s decision to hold the Fed funds rate at current levels on Wednesday. After falling as low as 0.8965 on Monday, USD/CHF has risen steadily to break above 0.9100 as Asian markets came online on Friday.

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

No major news events.

What can we expect from GBP today?

Cable hit an overnight high of 1.2476 before pulling away from this level. This currency pair was sliding towards 1.2400 at the beginning of the Asia session and looks all set to post its fourth decline over the past five weeks.

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

Weak Bearish

The Canadian Dollar (CAD)

Key news events today

GDP (1:30 pm GMT)

What can we expect from CAD today?

After expanding 0.3% MoM in October, Canada’s GDP is anticipated to decline by 0.1% in November to mark the first decline in 11 months. This contraction is attributed to lower output in extractive industries, transportation and warehousing; and financial services according to a flash estimate. The Loonie could face strong headwinds should GDP activity falter more than originally expected – a result that would lift USD/CAD.

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

Medium Bullish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

Crude oil prices stabilized on Thursday but this commodity is all but certain to register a second successive week of decline. WTI oil has tumbled nearly 6% over this period, falling as low as $72 per barrel overnight before prices steadied around $72.70. This benchmark climbed above the $73 level as Asian markets came online on the final trading day but overhead pressures continue to persist.

Next 24 Hours Bias

Medium Bearish

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