IC Markets Asia Fundamental Forecast | 10 July 2024
What happened in the U.S. session?
Federal Reserve Chairman Jerome Powell delivered his Congressional testimony on the Semi-Annual Monetary Policy Report before the Senate Banking Committee where he appeared to be laying the foundations for a potential interest rate cut in the coming months as the recent labour market data suggests a slowdown in jobs growth. “Elevated inflation is not the only risk we face,” Powell said on Tuesday, noting that the “labour market has cooled really significantly across so many measures“.
Meanwhile, Treasury Secretary Janet Yellen’s testimony before the House Financial Services Committee focused on the relationship that the U.S. shares with international financial institutions such as multilateral development banks and organisations such as the World Bank and the International Monetary Fund.
The dollar index (DXY) edged higher overnight as it climbed above the 105-level while gold prices reversed from $2,350/oz to climb towards $2,370/oz.
What does it mean for the Asia Session?
The RBNZ is anticipated to maintain its official cash rate at 5.5% for the eighth consecutive board meeting. Despite subdued GDP output over the last six quarters, inflation remains elevated with headline and core CPI coming in at 4.0% and 3.7% YoY respectively in Q1-24 – well above the RBNZ’s target of 1 to 3%. However, any dovish rhetoric by Governor Adrian Orr could spark a sell-off in the Kiwi.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Testifies (2:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Chairman Jerome Powell will conclude the second day of his Congressional testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee. Powell’s statements and remarks are bound to have a major impact on the direction of the dollar later today and traders should be prepared for higher volatility during this period.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the seventh 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 have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been modest further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand 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 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 will slow 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.
- Next meeting runs from 30 to 31 July 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Fed Chair Powell Testifies (2:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Chairman Jerome Powell will conclude the second day of his Congressional testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee. Powell’s statements and remarks are bound to have a major impact on gold prices later today and traders should be prepared for higher volatility during this period.
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 ranged within a narrow band between 0.6730 and 0.6745 overnight. This currency pair was trading around 0.6735 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.6715
Resistance: 0.6780
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the ninth pause out of the last ten board meetings.
- Over the year to April, the monthly CPI indicator rose by 3.6% in headline terms, and by 4.1% excluding volatile items and holiday travel, which was similar to its pace in December 2023.
- The central forecasts published in May were for inflation to return to the target range of 2–3% in the second half of 2025 and to the midpoint in 2026 while there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.
- Inflation is easing but has been doing so more slowly than previously expected and it remains high and 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 6 August 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Rate Statement (2:00 am GMT)
What can we expect from NZD today?
The RBNZ is anticipated to maintain its official cash rate at 5.5% for the eighth consecutive board meeting. Despite subdued GDP output over the last six quarters, inflation remains elevated with headline and core CPI coming in at 4.0% and 3.7% YoY respectively in Q1-24 – well above the RBNZ’s target of 1 to 3%. However, any dovish rhetoric by Governor Adrian Orr could spark a sell-off in the Kiwi.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the seventh meeting in a row and agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual headline CPI inflation returns to the 1 to 3% target range.
- Restrictive monetary policy is contributing to an easing in capacity pressures while headline inflation, core inflation, and most measures of inflation expectations are continuing to decline. However, domestic inflation has fallen more slowly than expected and headline CPI inflation remains above the Committee’s target band.
- Higher dwelling rents, insurance costs, council rates, and other domestic services price inflation have resulted in a slow decline in domestic inflation, posing a risk to inflation expectations.
- GDP declined by 0.1% in the December 2023 quarter with economic growth having now been negative for four of the past five quarters. High interest rates have reduced household spending, as well as residential and business investment, despite very strong population growth. Recent indicators of economic activity have been weak, as expected.
- Next meeting is on 10 July 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?
The yen remains significantly weak as USD/JPY hit an overnight high of 161.51. The bullish momentum remains in place as this currency pair was rising towards 161.70 as Asian markets came online – these are the support and resistance levels for today.
Support: 160.50
Resistance: 162.00
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 Japanese government bonds (JGB) purchases in accordance with the decisions made at the March 2024 MPM.
- The Bank decided, by an 8-1 majority vote, that it would reduce its purchase amount of JGBs thereafter to ensure that long-term interest rates would be formed more freely in financial markets.
- 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.
- In the second half of the projection period of the April 2024 Outlook for Economic Activity and Prices (Outlook Report), it is likely to be at a level that is generally consistent with the price stability target of 2%.
- The year-on-year rate of increase in the CPI (all items less fresh food), has been in the range of 2.0-2.5% 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.
- Japan’s economy has recovered moderately, although some weakness has been seen in part while 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.
- Next meeting is on 31 July 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?
The Euro hovered above 1.0800 through the U.S. session with no clear direction. This currency pair was trading around 1.0810 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.0795
Resistance: 1.0850
Central Bank Notes:
- The Governing Council today decided to lower the three key ECB interest rates by 25 basis points after nine months of holding rates steady.
- 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 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.
- Since September 2023, inflation has fallen by more than 2.5% and the inflation outlook has improved markedly while underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.
- At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year – the latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections.
- Projections now show headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026 while economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
- The Council also confirmed that it will reduce the Eurosystem’s holdings of securities under the pandemic emergency purchase programme (PEPP) by €7.5 billion per month on average over the second half of the year.
- 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.
- Next meeting is on 18 July 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?
Despite demand for the dollar waning, the franc is experiencing an even stronger lack of bids causing USD/CHF to hover above 0.8970. This currency pair was trading around 0.8980 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8950
Resistance: 0.9015
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
- The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
- The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
- Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
- Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Next meeting is on 26 September 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?
Demand for the Pound fizzled slightly as Cable pulled back towards 1.2780 overnight. This currency pair was trading around 1.2790 as Asian markets came online and could remain elevated today – these are the support and resistance levels for today.
Support: 1.2740
Resistance: 1.2860
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the seventh consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.
- Reflecting a margin of slack in the economy, CPI inflation had been projected to be 1.9% in two years’ time and 1.6% in three years.
- UK GDP appears to have grown more strongly than expected during the first half of this year. Business surveys, however, remain consistent with a slower pace of underlying growth, of around 0.25% per quarter.
- UK real GDP had increased by 0.6% in 2024 Q1, 0.2% stronger than had been expected in the May Monetary Policy Report and Bank staff now expect GDP growth of 0.5% in 2024 Q2 as a whole, stronger than the 0.2% rate that had been incorporated in the May Report.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 1 August 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?
With no clear direction, USD/CAD ranged within a narrow band between 1.3630 and 1.3650 overnight. This currency pair was trading around 1.3630 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.3590
Resistance: 1.3670
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.75% while continuing its policy of balance sheet normalization.
- Canada’s economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR but consumption growth was solid at about 3%, and business investment and housing activity also increased.
- Inflation remains above the 2% target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.
- CPI inflation has eased from 3.4% in December to 2.7% in April while the preferred measures of core inflation have come down from about 3.5% last December to about 2.75% in April and the 3-month rate of core inflation slowed from about 3.5% in December to under 2% in March and April.
- In the labour market, businesses are continuing to hire workers as employment has been growing, but at a slower pace than the working-age population while elevated wage pressures look to be moderating gradually.
- The Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
- Next meeting is on 24 July 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Despite API stockpiles experiencing a higher-than-expected drawdown, crude prices fell overnight with WTI oil tumbling nearly 0.8%. The API registered a decline of 1.9M barrels of crude versus the estimate of a 0.3M-drop but that did not prevent WTI oil from tumbling under $82 per barrel. The EIA inventories are forecasting for a minor draw of 0.3M barrels and should markets see a much higher decline, it could potentially function as a bullish catalyst for oil prices to eventually find a floor later today.
Next 24 Hours Bias
Medium Bearish
