IC Markets Asia Fundamental Forecast | 15 February 2024
What happened in the US session?
Federal Reserve Governor Michael Barr participated in a moderated discussion titled “A View from the Federal Reserve Board of Governors” at the Annual National Association for Business Economics Economic Policy Conference where he said “the US central bank needs to see more data indicating inflation is heading back to 2% before it begins lowering interest rates”; he also remarked that “he supports Fed Chair Jerome Powell’s careful approach to rate cuts”. Despite the relative hawkish tone, the dollar index (DXY) continued to retreat away from yesterday’s high of 104.95 to drop as low as 104.66.
What does it mean for the Asia Session?
Australia will release its labour force report for the month of January where the labour market is expected to add 26.4K jobs after shedding 65K jobs in December. The labour market looks set to return to growth but the unemployment rate is now forecasted to increase from 3.9% to 4.0%, pointing to a potential softness in this segment of the economy. Should January’s report disappoint on the labour front, the Aussie is likely to come under selling pressures once more.
The Dollar Index (DXY)
Key news events today
Retail Sales (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from DXY today?
Retail sales in the US are forecasted to post a second month of decline in four after growing steadily in November and December. January’s estimate of a 0.2%-drop should probably come as no surprise as consumers may look to cut back on spending in the first month of 2024 after splurging on Black Friday sales during the holiday shopping season.
Meanwhile, unemployment claims have trended higher over the last three weeks and the current estimate sits at 219K. Should claims print higher than this figure, it could point to some softness in the US labour market and potentially put some downward pressure on the dollar.
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 Bullish
Gold (XAU)
Key news events today
Retail Sales (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from Gold today?
Retail sales in the US are forecasted to post a second month of decline in four after growing steadily in November and December. January’s estimate of a 0.2%-drop should probably come as no surprise as consumers may look to cut back on spending in the first month of 2024 after splurging on Black Friday sales during the holiday shopping season.
Meanwhile, unemployment claims have trended higher over the last three weeks and the current estimate sits at 219K. Should claims print higher than this figure, it could point to some softness in the US labour market and potentially put some downward pressure on the dollar and provide a boost for gold.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (12:30 am GMT)
What can we expect from AUD today?
Australia will release its labour force report for the month of January where the labour market is expected to add 26.4K jobs after shedding 65K jobs in December. The labour market looks set to return to growth but the unemployment rate is now forecasted to increase from 3.9% to 4.0%, pointing to a potential softness in this segment of the economy. Should January’s report disappoint on the labour front, the Aussie is likely to come under selling pressures once more.
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
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Gov Orr Speaks (6:40 pm GMT)
What can we expect from NZD today?
RBNZ Governor Adrian Orr is due to deliver a speech titled “The Monetary Policy Remit and 2% Inflation” at the New Zealand Economics Forum in Hamilton where he may provide further clues into the future outlook for monetary policy. The Kiwi hit an overnight high of 0.6094 before reversing quite sharply. This currency was trading around 0.6080 at the beginning of the Asia session and is likely to drift lower 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
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Japan fell into technical recession for the first time in five years as the economy unexpectedly shrank in the last quarter of 2023 – this marked the second consecutive quarter of GDP contraction. A flailing economy is likely to keep the Bank of Japan (BoJ) pressing ahead with negative policy rates in the near-term but with USD/JPY trading above 150, intervention chatter is beginning to gain traction causing this currency pair to pull back from its 3-month high of 150.88 and slide towards 150.
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
Weak Bearish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (8:00 am GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to testify before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels where her statements and remarks could have a major impact on the direction of the Euro. This currency rose strongly overnight before running into resistance around 1.0735 and started to retreat from this level as Asian markets came online.
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 remains weak against the dollar providing support to USD/CHF. This currency pair pulled back overnight but found support around the region of 0.8850 and could rebound higher as the day progresses.
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 Bearish
The Pound (GBP)
Key news events today
GDP (7:00 am GMT)
What can we expect from GBP today?
Monthly economic growth in the UK has been mixed throughout 2023 and December’s reading is set to show this trend continuing. After growing 0.3% MoM in November, December’s estimate points to a decline of 0.2%. Should economic activity contract more than anticipated, it is more than likely to have a negative impact on the Pound before the start of the European trading hours.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Loonie strengthened versus the dollar overnight causing USD/CAD to fall under 1.3550. However, this currency pair found support around 1.3540 at the beginning of the Asia session and could rebound higher today.
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 Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Following the huge upside surprise in API stockpiles on Tuesday, the EIA inventories also registered a much larger than expected inventory build overnight. EIA inventories added 12M barrels of crude oil versus the estimate of just 3.3M, highlighting a potential weakening of crude demand in the US. Inventories have also been building due to the elevated production levels in the US which hit a record high of 13.3M barrels per day in the week ending on 9th of February.
WTI oil pulled back sharply from this week’s high of $78.76 per barrel, losing 1.7% overnight to trade around $76.30 as Asian markets came online. Overhead pressures remain for this commodity today.
Next 24 Hours Bias
Medium Bearish
