IC Markets Asia Fundamental Forecast | 15 May 2024
What happened in the US session?
The Producer Price Index (PPI) – which measures wholesale inflation – accelerated on a monthly basis as the headline and core readings both printed higher than their respective estimates. Headline PPI rose 0.5% MoM versus an estimated gain of 0.3% while the core increased 0.5% MoM as well in April, higher than the forecast of 0.2%. On an annualised basis, both headline and core PPI came in line with their respective estimates at 2.2% and 2.4% respectively, YoY.
Although this was a hot PPI print, the figures for the month of March were revised significantly lower which seemed to take the air out of the initial surge in demand for the dollar. Both headline and core PPI were revised down from 0.2% to -0.1%. The dollar index (DXY) had spiked as high as 105.45 from 105.20 in the immediate aftermath of this news release. However, this surge was short-lived as the DXY reversed within 10 minutes to give up all the gains as it dipped under the threshold of 105 to settle around this level by the end of this session.
What does it mean for the Asia Session?
Australia will release its wage price index for the first quarter of 2023 this morning. Wages have increased steadily since 2022 with the index rising from 2.4% in Q1 of 2022 to 4.2% YoY in the fourth quarter of last year. This marked the highest reading since Q1 of 2009 and should this index continue to accelerate in the first quarter of 2024, it could provide a lift for the Aussie.
The Dollar Index (DXY)
Key news events today
CPI (12:30 pm GMT)
Retail Sales (12:30 pm GMT)
What can we expect from DXY today?
The Consumer Price Index (CPI) – which measures wholesale inflation – accelerated on a monthly and annualised basis in the first quarter of this year. This upward trend could finally be tempering out based on the forecasts for April. Should we see CPI come in soft along with any downward revisions for the month of March as seen in yesterday’s PPI result, the dollar could come under pressure once more.
After declining 0.9% MoM in January, retail sales rebounded strongly in February and March as 8 out of 13 categories posted higher sales to highlight robust consumer spending. The estimate of 0.4% in April points to a third consecutive month of growing sales but at a slightly slower pace as compared to the 0.9% and 0.7% growth seen in February and March respectively. Should sales surprise to the upside, it could provide a boost for the greenback.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the sixth 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 a lack of 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 assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee 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.
- The Committee’s assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
- 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 11 to 12 June 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
CPI (12:30 pm GMT)
Retail Sales (12:30 pm GMT)
What can we expect from Gold today?
The Consumer Price Index (CPI) – which measures wholesale inflation – accelerated on a monthly and annualised basis in the first quarter of this year. This upward trend could finally be tempering out based on the forecasts for April. Should we see CPI come in soft along with any downward revisions for the month of March as seen in yesterday’s PPI result, the dollar could come under pressure once more.
After declining 0.9% MoM in January, retail sales rebounded strongly in February and March as 8 out of 13 categories posted higher sales to highlight robust consumer spending. The estimate of 0.4% in April points to a third consecutive month of growing sales but at a slightly slower pace as compared to the 0.9% and 0.7% growth seen in February and March respectively. Should sales surprise to the upside, it could provide a boost for the greenback.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Wage Price Index (1:30 am GMT)
What can we expect from AUD today?
Australia will release its wage price index for the first quarter of 2023 this morning. Wages have increased steadily since 2022 with the index rising from 2.4% in Q1 of 2022 to 4.2% YoY in the fourth quarter of last year. This marked the highest reading since Q1 of 2009 and should this index continue to accelerate in the first quarter of 2024, it could provide a lift for the Aussie.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the eighth pause out of the last nine board meetings.
- The CPI grew by 3.6% over the year to the March quarter, down from 4.1% cent over the year to December. Underlying inflation was higher than headline inflation and declined by less – this was due in large part to services inflation, which remains high and is moderating only gradually.
- The central forecasts, based on the assumption that the cash rate follows market expectations, are for inflation to return to the target range of 2 to 3% in the second half of 2025, and to the midpoint in 2026.
- In the near term, inflation is forecast to be higher because of the recent rise in domestic petrol prices, and higher than expected services price inflation, which is now forecast to decline more slowly over the rest of the year.
- Inflation is, however, expected to decline over 2025 and 2026.
- 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 18 June 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 dived as low as 0.5995 following the release of the PPI data overnight but it reversed swiftly to recover all the initial losses and rise strongly towards 0.6040 by the end of the US session. This currency pair was trading around 0.6050 this morning and could remain elevated – these are the support and resistance levels for today.
Support: 0.6000
Resistance: 0.6080
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 Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The yen was stable overnight causing USD/JPY to remain relatively unchanged at 156.50. This currency pair edged lower as Asian markets came online and it could drift lower – these are the support and resistance levels for today.
Support: 155.50
Resistance: 157.90
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.
- In a quarterly outlook, the committee revised higher CPI prints for FY 2024 to 2.8% from January’s projections of 2.4%, due to the waning effects of higher import prices and fewer government support measures.
- For 2025, the board expects core inflation to hit 1.9%, slightly higher than its earlier estimates of 1.8%, reflecting a recent rise in oil prices.
- Policymakers cut their 2023 GDP growth forecast to 1.3% from 1.8% and for FY 2024, the bank also slashed its GDP outlook to 0.8% from 1.2%, mainly reflecting lower private consumption.
- Next meeting is on 14 June 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
GDP (9:00 am GMT)
Industrial Production (9:00 am GMT)
What can we expect from EUR today?
GDP and industrial production figures for the Euro Area are due for release today and should these data points come in stronger than originally anticipated, the Euro could receive a boost during the European trading hours.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 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?
The franc initially weakened overnight causing USD/CHF to briefly surge past 0.9100 but it was a short-lived impulse. This currency pair swiftly reversed to drop towards 0.9050 by the end of the US session – these are the support and resistance levels for today.
Support: 0.9050
Resistance: 0.9100
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
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Cable rose strongly overnight to climb above 1.2580 and this currency pair looks set to break above the threshold of 1.2600 today – these are the support and resistance levels for today.
Support: 1.2530
Resistance: 1.2650
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 sixth 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 3.2% in March from 3.4% in February and is expected to return to close to the 2% target in the near term, but increase slightly in the second half of this year to around 2.5% owing to the unwinding of energy-related base effects.
- CPI inflation is projected to be 1.9% in two years’ time and 1.6% in three years in the May Report. With respect to indicators of inflation persistence, services consumer price inflation has declined but remains elevated at 6% in March.
- Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2, stronger than expected in the February Report. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably and 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 20 June 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?
The Loonie gained overnight causing USD/CAD to drop as low as 1.3630. This currency pair retraced higher towards 1.3650 before resuming the downward trend as Asian markets came online – these are the support and resistance levels for today.
Support: 1.3630
Resistance: 1.3660
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 Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Following two weeks of inventory builds, the API stockpiles fell by 3.1M barrels of crude, in sign of improving demand in the US. WTI oil rebounded off the $78-level to climb strongly above $78.50 per barrel. Should the EIA inventories also register a significant drawdown, it could function as an additional tailwind for crude prices later today.
Next 24 Hours Bias
Weak Bullish
