IC Markets Asia Fundamental Forecast | 12 January 2024
What happened in the US session?
Inflation in the US accelerated in December as headline CPI printed higher than the previous month’s readings as well as its forecasts on a monthly and yearly basis. Headline CPI rose 0.3% MoM versus the estimate of 0.2% while surging to 3.4% YoY versus the estimate of 3.2%. Although core CPI eased from 4.0% YoY to 3.9% YoY, it too came in higher than its estimate of 3.8%.
Meanwhile, unemployment claims of 202k were lower than the forecast as well as last week’s figures, indicating a robust labour market in the US. In all, these economic data points proved to be an extremely bullish catalyst for the greenback as the dollar index (DXY) surged from 102.15 to as high as 102.75 in the immediate aftermath of this news release.
What does it mean for the Asia Session?
The overnight spike in the dollar was not sustained as the DXY pulled back towards 102.30 by the end of the US session. Despite the ‘hot’ CPI data, the DXY was sliding towards 102 as Asian markets digested the latest inflation print.
The Dollar Index (DXY)
Key news events today
PPI (1:30 pm GMT)
What can we expect from DXY today?
Producer Price Index (PPI) – which measures wholesale inflation – has eased considerably since mid-2022 as demand for the manufacturing sector dived over the same period. Another round of softer PPI data could add downward pressure on the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- 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 to 31 January 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
PPI (1:30 pm GMT)
What can we expect from Gold today?
Producer Price Index (PPI) – which measures wholesale inflation – has eased considerably since mid-2022 as demand for the manufacturing sector dived over the same period. Another round of softer PPI data could add downward pressure on the dollar and potentially lift gold prices.
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 dived as low as 0.6650 overnight before rebounding strongly at the start of the Asia session. This currency rose above 0.6700 and is likely to remain elevated today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi tumbled as low as 0.6195 overnight before rebounding strongly as Asian markets came online. This currency climbed above 0.6250 and is likely to remain elevated today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Hotter-than-expected inflation data caused USD/JPY to spike as high as 146.40 overnight but this currency pair retreated sharply by the end of the US session and was tumbling towards 145 at the start of the Asia session.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- The Bank of Japan decided on the following measures:
- Yield curve control: 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 have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, 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 23 January 2024.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro tumbled as low as 1.09300 overnight before rebounding strongly at the start of the Asia session. It was rising towards 1.1000 and is likely to remain elevated today.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter 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 25 January 2024.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Hotter-than-expected inflation data caused USD/CHF to spike as high as 0.8565 overnight but this currency pair retreated sharply by the end of the US session and was tumbling towards 0.8500 as Asian markets came online.
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
Medium Bearish
The Pound (GBP)
Key news events today
GDP (7:00 am GMT)
What can we expect from GBP today?
Economic growth in the UK has been mixed over the past year as highlighted by the monthly GDP figures. This data point has swung between growth and decline with manufacturing activity contracting since mid-2022 while the services sector has pulled up overall economic activity. Should November’s reading print higher than the estimate of 0.2%, it could provide a boost for the Pound.
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%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons, respectively.
- Next meeting is on 1 February 2024.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Hotter-than-expected inflation data caused USD/CAD to spike as high as 1.3445 overnight but this currency pair retreated sharply by the end of the US session and tumbled under 1.3400 at the start of the Asia session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Tensions escalated in the Red Sea as Iran seized an oil tanker that was destined for Turkey, causing crude prices to spike. This seizure by Iran was in retaliation for the confiscation of the same vessel by the US last year. WTI oil surged strongly past $73 per barrel overnight and it looks to climb above $74 today.
Next 24 Hours Bias
Strong Bullish
