IC Markets Asia Fundamental Forecast | 11 April 2024
What happened in the US session?
The latest inflation data in the US showed consumer inflation coming in hot for the third consecutive month. Headline and core CPI all increased higher than their respective estimates on a monthly and annualised basis. Headline and core CPI grew strongly once again to rise 0.4% MoM while the headline reading jumped from 3.2% in the previous month to 3.5% YoY in March – core CPI was unchanged but remained elevated at 3.8% YoY.
This recent data suggests that the probability of a re-acceleration of inflationary pressures is increasing rapidly which is more than likely to cause the Federal Reserve to push back any potential interest rate cuts towards the second half of the year. The dollar bulls returned with a vengeance as the dollar index (DXY) spiked from 104 to as high as 105.30 overnight.
In addition to the US inflation report, the Bank of Canada (BoC) also released its monetary policy statement where it held its overnight rate at 5% for the fifth consecutive meeting. Combined with a hot CPI print, the Loonie came under significant selling pressures causing USD/CAD to surge from 1.3560 to hit an overnight high of 1.3703.
What does it mean for the Asia Session?
Markets will receive information on the level of consumer and wholesale inflation in China as the country releases its CPI and PPI readings for the month of March. Increasing prices are a sign that domestic demand is picking up led by higher consumer spending as well as industrial and manufacturing activity. Higher industrial and manufacturing output in the world’s second largest economy would typically signal stronger demand for crude oil and potentially boost prices for this commodity.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
After hotter-than-expected CPI overnight, there is a keen sense that the latest PPI data will also surprise estimates to the upside to indicate rising inflationary pressures in the wholesale sector which would potentially provide an additional catalyst for the dollar bulls.
Unemployment claims will also be released today and should we see the downtrend in claims resume after last week’s spike, the dollar could rise even higher.
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 Bullish
Gold (XAU)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
After hotter-than-expected CPI overnight, there is a keen sense that the latest PPI data will also surprise estimates to the upside to indicate rising inflationary pressures in the wholesale sector which would potentially provide an additional catalyst for the dollar bulls.
Unemployment claims will also be released today and should we see the downtrend in claims resume after last week’s spike, the dollar could rise even higher and maybe finally cap the recent gains in gold.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Following the hotter-than-anticipated CPI figures out of the US, the Aussie dived sharply from 0.6620 to 0.6500 overnight. This currency pair was retracing slightly higher as Asian markets came online but overhead pressures remain.
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 Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi tumbled hard following the hotter-than-anticipated CPI figures out of the US, falling from 0.6080 to as low as 0.5965 to shed 115 pips in the process. This currency pair was edging higher at the beginning of the Asia session but strong headwinds persist.
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 Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Following the hotter-than-anticipated CPI figures out of the US, the Japanese yen weakened causing USD/JPY to finally break above its key resistance threshold at 152 overnight. This currency pair surged from 151.80 to hit a high of 153.24 before pulling back slightly as Asian markets came online. Strong tailwinds remain and USD/JPY should continue climbing as the day progresses.
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
Medium Bullish
The Euro (EUR)
Key news events today
ECB Monetary Policy Statement (12:15 pm GMT)
ECB Press Conference (12:45 pm GMT)
What can we expect from EUR today?
The ECB is widely expected to maintain its main refinancing rate on hold at 4.5% – a move that would mark the fifth consecutive meeting where they have done so. However, a surprise rate cut should not be ruled out as inflationary pressures have dissipated strongly in the Euro area with headline CPI and core CPI both inching closer to the central bank’s target of 2%. Should a rate cut actually take place, the Euro is bound to face intense selling pressures.
In addition, ECB President Christine Lagarde will deliver her press conference half an hour after the statement is released and should she convey a dovish outlook on future monetary policy action, it is more than likely to create additional headwinds for the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fourth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Since the last Governing Council meeting in January, inflation has declined further while the latest ECB staff projections show inflation has been revised down, in particular for 2024, which mainly reflects a lower contribution from energy prices.
- The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages.
- Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in the near term.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
- Next meeting is on 11 April 2024.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following the hotter-than-anticipated CPI figures out of the US, the Swiss franc weakened causing USD/CHF to surge past 0.9100 overnight. This currency pair hit a high of 0.9148 before pulling back slightly at the beginning of the Asia session. Strong tailwinds remain and USD/CHF should continue rising as the day progresses.
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
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound dived sharply following the hotter-than-anticipated CPI figures out of the US, diving sharply from 1.2700 to 1.2520 overnight. This currency pair was retracing slightly higher as Asian markets came online but overhead pressures remain.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Bank of Canada (BoC) released its monetary policy statement where it held its overnight rate at 5% for the fifth consecutive meeting and continued its policy of quantitative tightening. The central bank also refrained from giving any hints on the first rate cut due to persistent upside risks to inflation while noting that although price pressures have eased across a broad range of goods and services since the last meeting, the uncertain macroeconomic backdrop and higher-than-expected commodity prices, including oil, prevent a smoother convergence of disinflation.
BoC Governor Tiff Macklem added that although the latest data pointed to some progress in the moderation of underlying inflation, the data is still not sufficient to confidently warrant looser monetary policy action. Combined with a hot CPI print, the Loonie came under significant selling pressures causing USD/CAD to surge from 1.3560 to hit an overnight high of 1.3703.
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
Medium Bullish
Oil
Key news events today
China CPI and PPI (1:30 am GMT)
What can we expect from Oil today?
Markets will receive information on the level of consumer and wholesale inflation in China as the country releases its CPI and PPI readings for the month of March. Increasing prices are a sign that domestic demand is picking up led by higher consumer spending as well as industrial and manufacturing activity. Higher industrial and manufacturing output in the world’s second largest economy would typically signal stronger demand for crude oil and potentially boost prices for this commodity.
Next 24 Hours Bias
Weak Bullish
