What happened in the US session?
The readings for PCE Price Index were inline with the monthly and annualised estimates but the figures still rose strongly for the month of January. Headline PCE rose 0.3% MoM which was the highest growth in four months while the core jumped 0.4% MoM to mark the biggest gain since February 2023. On an annualised rate, the headline and core PCE both remained unchanged at 2.4% and 2.8% respectively.
Combined with unemployment claims of 215K which was higher than the forecast of 209K and the previous week’s reading of 202K (higher claims typically signal a softer labour market), the dollar initially sold off before recovering the losses to bounce higher. The dollar index (DXY) dropped as low as 103.65 in the aftermath of the data release before rebounding strongly to hit 104.18.
What does it mean for the Asia Session?
RBNZ Governor Adrian Orr will be speaking about the monetary policy statement that was released on 28th February where he could share further insights into the board’s decision to keep the official cash rate on hold at 5.5% for the fifth straight meeting. The Kiwi was dropped to a low of 0.6070 prior to Governor Orr’s speech.
The Dollar Index (DXY)
Key news events today
ISM Manufacturing PMI (1:30 pm GMT)
FOMC Member Waller Speaks (3:15 pm GMT)
What can we expect from DXY today?
The ISM report has highlighted a weak manufacturing sector for the US over the past 15 months and February’s estimate of 49.5 shows this trend extending. However, all eyes will be on the Prices index of this report which registered a strong expansion for industries paying increased prices for raw materials in January. Should this component signal prices increasing once more, it may raise concerns that inflation in the manufacturing sector is re-accelerating.
Meanwhile, Federal Reserve Governor Christopher Waller is due to speak about quantitative tightening at the US Monetary Policy Forum in New York where audience questions are expected. Given the recent monthly increases in CPI, PPI and PCE readings for the month of January, Governor Waller could push back against any premature interest rate cuts and may cause the dollar to be bid up.
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
Weak Bearish
Gold (XAU)
Key news events today
ISM Manufacturing PMI (1:30 pm GMT)
FOMC Member Waller Speaks (3:15 pm GMT)
What can we expect from Gold today?
The ISM report has highlighted a weak manufacturing sector for the US over the past 15 months and February’s estimate of 49.5 shows this trend extending. However, all eyes will be on the Prices index of this report which registered a strong expansion for industries paying increased prices for raw materials in January. Should this component signal prices increasing once more, it may raise concerns that inflation in the manufacturing sector is re-accelerating.
Meanwhile, Federal Reserve Governor Christopher Waller is due to speak about quantitative tightening at the US Monetary Policy Forum in New York where audience questions are expected. Given the recent monthly increases in CPI, PPI and PCE readings for the month of January, Governor Waller could push back against any premature interest rate cuts and may cause the dollar to be bid up and hence cap any further gains for gold.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie has been in a downtrend since 22nd February falling from a high of 0.6590 to as low as 0.6490 overnight. It was rising towards 0.6520 at the beginning of the Asia session but overhead pressures remain and it is likely to reverse course in the second half of the day.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Gov Orr Speaks (12:05 am GMT)
What can we expect from NZD today?
RBNZ Governor Adrian Orr will be speaking about the monetary policy statement that was released on 28th February where he could share further insights into the board’s decision to keep the official cash rate on hold at 5.5% for the fifth straight meeting. The Kiwi was dropped to a low of 0.6070 prior to Governor Orr’s speech.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Following yesterday’s hawkish statements by Bank of Japan (BoJ) member Hajime Takata, BoJ Governor Kazuo Ueda tempered market speculation surrounding a first rate hike since 2007 by saying that the central bank’s inflation target is not yet in sight. “We will continue to seek confirmation whether the virtuous cycle between wages and price began to turn,” Ueda said on Thursday after meeting with Group of 20 finance chiefs in Sao Paulo, Brazil. Governor Ueda’s comments sparked a strong sell-off in the Japanese yen this morning and propelled USD/JPY as high as 150.40, gaining 100 pips in the process.
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
Manufacturing PMI (9:00 am GMT)
CPI (10:00 am GMT)
What can we expect from EUR today?
The Eurozone’s manufacturing sector has contracted over the last 11 months as February’s flash PMI reading highlighted significant drops in both new orders and export orders while job losses accelerated. The final PMI reading is unlikely to show any major changes and is expected to come in at 46.1. Meanwhile, inflation has eased considerably over the past 5 months and the estimates for February point to further easing of inflationary pressures for both headline and core CPI readings. The Euro is likely to come under selling pressure following the release of these economic data points.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc weakened overnight causing USD/CHF to jump from 0.8790 to as high as 0.8845 by the end of the US session. This currency pair was trading around 0.8840 as Asian markets came online and is expected to continue its ascend today.
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
Weak Bullish
The Pound (GBP)
Key news events today
Manufacturing PMI (9:30 am GMT)
What can we expect from GBP today?
Manufacturing activity in the UK remains in the doldrums as this sector continues to contract over a period of nearly 18 months. February’s estimate of 47.1 points to another month of weak output and should the PMI reading print lower than the estimate, the Pound could come under pressure as European markets get underway.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The recent gains in USD/CAD have been capped at 1.3600 with this currency pair once again reversing from this barrier overnight to drop as low as 1.3540. It retraced higher towards the end of the US session but reversed around 1.3580 to drop lower at the beginning of the Asia session.
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
Weak Bearish
Oil
Key news events today
China Composite PMI (1:30 am GMT)
What can we expect from Oil today?
A Reuters survey showed the Organization of the Petroleum Exporting Countries (OPEC) pumped 26.42 million barrels per day (bpd) in February, up 90,000 bpd from January. Rising output by OPEC weighed on crude oil price overnight with WTI oil hitting a high of $79.40 per barrel before dropping lower. WTI found support around $78.20 before climbing higher as Asian markets came online with oil traders keeping an eye out for the latest manufacturing and services PMI readings from China.
Next 24 Hours Bias
Weak Bullish
