IC Markets Asia Fundamental Forecast | 19 February 2025
In a surprise twist, the New York Empire State Manufacturing Index surged 18.3 points to +5.7 in February, easily surpassing market expectations of -1 and signalling a slight rebound in business activity across New York State. Sub-indices such as new orders and shipments saw moderate growth, while employment levels declined. On the inflation front, input costs rose at the fastest pace in nearly two years, while selling prices also increased noticeably. Finally, business optimism about the outlook dropped significantly, although firms expect conditions to improve over the next six months. This improvement in manufacturing activity provided a lift for the dollar index (DXY) as it hit an overnight high of 107.12 and the upward momentum should continue to grow on Wednesday.
What does it mean for the Asia Session?
As widely expected, the RBNZ moved ahead with its fourth consecutive rate cut by making a 50-basis point (bps) reduction in its Official Cash Rate (OCR). This latest move marked the third successive 50-bps cut since this central bank started its cutting cycle in August 2024. The OCR is now at its lowest level since late 2022 amidst rising unemployment, contracting economic growth, and cooling inflation. The Kiwi dived sharply following the release of the statement, tumbling nearly 0.5%. RBNZ Governor Adrian Orr’s press conference commences at 4:30 am GMT and should he convey further dovish outlook on future monetary policy action, downward pressures on the Kiwi will likely intensify.
The Dollar Index (DXY)
Key news events today
FOMC Meeting Minutes (7:00 pm GMT)
What can we expect from DXY today?
The minutes from the FOMC meeting that took place from 28th to 29th January will be released later today. Markets will be provided with in-depth insights into the economic and financial conditions that influenced the Board of Governors of the Federal Reserve System’s unanimous vote to maintain the Federal Funds Rate in a target range of 4.25 to 4.50%. The greenback could receive further tailwinds in the latter part of Wednesday.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25 to 4.50% on 29 January.
- 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 roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while the unemployment rate has stabilized at a low level in recent months, and labour market conditions remain solid. However, inflation remains somewhat elevated.
- December’s Summary of Economic Projections (SEP) now indicates just two rate cuts in 2025 totalling 50 bps, compared to the full percentage point of reductions projected in the previous quarter.
- GDP growth forecasts were revised upward for 2024 (2.5% vs. 2% in the September projection) and 2025 (2.1% vs. 2%), while remaining steady at 2% for 2026. Similarly, PCE inflation projections have been adjusted higher for 2024 (2.4% vs. 2.3%), 2025 (2.5% vs. 2.1%), and 2026 (2.1% vs. 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.
- The Committee will roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month and redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
- In addition, the Committee will reinvest the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding.
- The next meeting runs from 18 to 19 March 2025.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
FOMC Meeting Minutes (7:00 pm GMT)
What can we expect from Gold today?
The minutes from the FOMC meeting that took place from 28th to 29th January will be released later today. Markets will be provided with in-depth insights into the economic and financial conditions that influenced the Board of Governors of the Federal Reserve System’s unanimous vote to maintain the Federal Funds Rate in a target range of 4.25 to 4.50%. Gold will likely experience some degree of volatility as the minutes are dropped.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
After making its first rate cut since November 2020 on Tuesday, the Aussie fell as low as 0.6334 on Tuesday. Combined with the RBNZ’s latest jumbo rate cut of 50 basis points (bps) on Wednesday, this currency pair will likely extend its downtrend as strong bearish sentiment for the Kiwi will also drag down the Aussie.
Central Bank Notes:
- The RBA reduced the cash rate by 25 basis points to bring it down to 4.10% on 18 January, marking the first rate cut since November 2020.
- Financial conditions are restrictive, which is weighing on demand and is helping to bring down underlying inflation; growth in private demand has been subdued.
- Underlying inflation has moderated over the past three quarters with trimmed mean inflation easing to 3.2% over 2024 and it is expected to reach the 2–3% target range in early 2025, which is sooner than expected at the time of the November Statement.
- The unemployment rate declined a little in late 2024 to 4% with much of the strength in the labour market underpinned by strong employment growth, which has also bolstered household incomes.
- The announcement of tariffs between the United States and other major economies poses challenges to the global outlook but the scale and incidence of the tariffs and their effects remain highly uncertain – which may itself delay some investment until the outlook becomes clearer.
- Economic activity strengthened in China but growth there is still facing structural headwinds while domestic economic growth is forecast to pick up and the labour market is forecast to remain tight.
- If the cash rate follows the market path, underlying inflation is projected to be a little above 2.5% over most of the forecast period. The anticipated recovery of GDP growth and lingering tightness in labour market conditions are expected to sustain some upward pressure on inflation.
- Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment.
- The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions, paying close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
- The next meeting is on 1 April 2025.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Interest Rate Decision (3:30 am GMT)
RBNZ Press Conference (4:30 am GMT)
What can we expect from NZD today?
As widely expected, the RBNZ moved ahead with its fourth consecutive rate cut by making a 50-basis point (bps) reduction in its Official Cash Rate (OCR). This latest move marked the third successive 50-bps cut since this central bank started its cutting cycle in August 2024. The OCR is now at its lowest level since late 2022 amidst rising unemployment, contracting economic growth, and cooling inflation. The Kiwi dived sharply following the release of the statement, tumbling nearly 0.5%. RBNZ Governor Adrian Orr’s press conference commences at 4:30 am GMT and should he convey further dovish outlook on future monetary policy action, downward pressures on the Kiwi will likely intensify.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 50 basis points bringing it down to 3.75% on 19 February, marking the fourth consecutive rate cut.
- The Committee assessed that annual consumer price inflation remains near the midpoint of the MPC’s 1 to 3% target band; inflation expectations are at target and core inflation continues to fall towards the target mid-point.
- Economic activity in New Zealand remains subdued and with spare productive capacity, domestic inflation pressures continue to ease. Price and wage-setting behaviours are adapting to a low-inflation environment while the price of imports has fallen, also contributing to lower headline inflation.
- Economic growth is expected to recover during 2025 as lower interest rates will encourage spending, although elevated global economic uncertainty is expected to weigh on business investment decisions. Higher prices for some key commodities and a lower exchange rate will increase export revenues and employment growth is expected to pick up in the second half of the year as the domestic economy recovers.
- Global economic growth is expected to remain subdued in the near term as geopolitics, including uncertainty about trade barriers, is likely to weaken global growth. Global economic activity is also likely to remain fragile over the medium term given increasing geoeconomic fragmentation.
- Consumer price inflation is expected to be volatile in the near term, due to a lower exchange rate and higher petrol prices. Nevertheless, the Committee is well placed to maintain price stability over the medium term.
- Expectations of future inflation, the pricing intentions of firms, and spare productive capacity are consistent with the inflation target being sustainably achieved, providing the context and the confidence for the Committee to ease monetary policy restraint further.
- The economic outlook remains consistent with inflation remaining in the band over the medium term, giving the Committee confidence to continue lowering the OCR. If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.
- The next meeting is on 9 April 2025.
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?
Demand for the greenback picked up on Tuesday as USD/JPY reversed off Tuesday’s lows at 151.20 to climb above 152. This currency pair was hovering around 151.90 at the beginning of the Asia session on Wednesday but should remain elevated as the day progresses.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 24 January, by an 8-1 majority vote, to set the following guidelines for money market operations for the inter-meeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.
- The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- Japan’s economy has recovered moderately, although some weakness has been seen in part. Exports and industrial production have been more or less flat while corporate profits have been on an improving trend and business sentiment has stayed at a favourable level.
- The employment and income situation has improved moderately while private consumption has been on a moderately increasing trend despite the impact of price rises and other factors.
- On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been at around 3% 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 while underlying CPI inflation has been increasing gradually toward the price stability target of 2%. With wages continuing to rise, there has been an increase in moves to reflect higher costs, such as increased personnel expenses and distribution costs, in selling prices.
- Japan’s economy 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.
- The next meeting is on 19 March 2025.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Despite the ZEW Economic Sentiment index reporting a significant improvement for both the Euro Area and Germany on Tuesday, demand for the Euro remained frail as it hit a low of 1.0421. This currency pair found its footing around 1.0445 as Asian markets came online on Wednesday but overhead pressures remain intact.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 30 January to mark the fourth successive rate cut.
- 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 2.90%, 3.15% and 2.75% respectively.
- The disinflation process is well on track and inflation is set to return to the Governing Council’s 2% medium-term target in the course of this year. Most measures of underlying inflation suggest that inflation will settle at around the target on a sustained basis.
- Staff see headline inflation averaging 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.
- Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter – the economy is expected to grow by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027
- The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.
- The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises sustainably at its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.
- The next meeting is on 6 March 2025.
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?
Demand for the franc waned at the beginning of this week as USD/CHF reversed off Monday’s low of 0.8970 to rise strongly above the threshold of 0.9000. This currency pair reached an overnight high of 0.9038 and looks set to continue its upward momentum on Wednesday.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 50 basis points, going from 1.00% to 0.50% on 12 December, marking the fourth consecutive reduction.
- Underlying inflationary pressure has decreased again this quarter.
- Inflation in the period since the last monetary policy assessment has again been lower than expected as it decreased from 1.1% in August to 0.7% in November; both goods and services contributed to this decline.
- In the shorter term, the new conditional inflation forecast is below that of September: 1.1% for 2024, 0.3% for 2025 and 0.8% for 2026, based on the assumption that the SNB policy rate is 0.5% over the entire forecast horizon.
- GDP growth in Switzerland was only modest in the third quarter of 2024 with growth in the services sector again somewhat stronger, while value added in manufacturing declined.
- There was a further slight increase in unemployment, and employment growth was subdued while the utilisation of overall production capacity was
- normal.
- The SNB anticipates GDP growth of around 1% this year while currently expecting growth of between 1.0% and 1.5% for 2025.
- The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
- The next meeting is on 20 March 2025.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
CPI (7:00 am GMT)
What can we expect from GBP today?
Following Tuesday’s Labour Force report which highlighted a mixed result, all focus will now be on consumer inflation. After moderating slightly lower in December 2024, headline and core CPI are expected to accelerate sharply in January. Headline CPI is anticipated to rise from an annual rate of 2.5% in the previous month to 2.8% while the core is expected to jump from 3.2% to 3.7%. Should inflationary pressures exceed market forecasts, demand for the pound will likely surge 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 7 to 2 to reduce the Bank Rate by 25 basis points (bps) to bring it down to 4.50% on 6 February 2025, while two members preferred to reduce it by 50 bps.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B, starting in October 2024. On 18 December 2024, the stock of UK government bonds held for monetary policy purposes was £655B.
- CPI inflation was 2.5% in 2024 Q4 as domestic inflationary pressures moderated but remained somewhat elevated while some indicators eased more slowly than expected. Higher global energy costs and regulated price changes are expected to push up headline CPI inflation to 3.7% in 2025 Q3, even as underlying domestic inflationary pressures are expected to wane further.
- While CPI inflation is expected to fall back to around the 2% target thereafter, the Committee will pay close attention to any consequent signs of more lasting inflationary pressures.
- GDP growth has been weaker than expected at the time of the November Monetary Policy Report, and indicators of business and consumer confidence have declined – GDP growth is expected to pick up from the middle of this year.
- The labour market has continued to ease and is judged to be broadly in balance. Productivity growth has been weaker than previously estimated, and the Committee judges that growth in the supply capacity of the economy has weakened.
- Based on the Committee’s evolving view of the medium-term outlook for inflation, a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate and it will continue to monitor closely the risks of inflation persistence and what the evolving evidence may reveal about the balance between aggregate supply and demand in the economy.
- Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- The next meeting is on 8 May 2025.
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?
Despite consumer inflation rising noticeably in January as measured by median/trimmed/common-CPI, demand for the Loonie was tepid. USD/CAD stabilized at around 1.4150 at the beginning of the week before edging higher. This currency pair continued its slow but steady upward trend as it hit an overnight high of 1.4212.
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points bringing it down to 3% on 29 January; this marked the sixth consecutive meeting where rates were reduced.
- The bank announced its plan to complete the normalization of its balance sheet, ending quantitative tightening, and will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.
- Past cuts to interest rates have started to boost the economy and the recent strengthening in both consumption and housing activity is expected to continue. However, business investment remains weak while the outlook for exports is being supported by new export capacity for oil and gas.
- The Bank forecasts GDP growth will strengthen in 2025 and now projects GDP will grow by 1.8% in both 2025 and 2026, somewhat higher than potential growth.
- The labour market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing.
- CPI inflation remains close to 2%, with some volatility due to the temporary suspension of the GST/HST on some consumer products. Shelter price inflation is still elevated but it is easing gradually, as expected
- A broad range of indicators, including surveys of inflation expectations and the distribution of price changes among components of the CPI, suggests that underlying inflation is close to 2% with forecasts that CPI inflation will be around the 2% target over the next two years.
- With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, the Governing Council decided to reduce the policy rate a further 25 basis points to support growth and keep inflation close to the middle of the 1-3% target range.
- The cumulative reduction in the policy rate since last June is substantial as lower interest rates are boosting household spending and the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.
- The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- The next meeting is on 12 March 2025.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
API Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
Crude oil has seen a strong start to the week as prices rose 2% over the last couple of days as supply disruptions mounted in Russia’s southern Krasnodar region, reducing oil flows from Kazakhstan to world markets by Western producers while early negotiations between the U.S. and Russia to end the war in Ukraine capped gains. WTI oil hit an overnight high of $71.83 per barrel and this benchmark should remain elevated for most of Wednesday. Moving over to U.S. inventories, the API stockpiles have risen pronouncedly over the past three weeks which is a sign of weaker demand. Should these stockpiles continue to build even further, the recent gain in crude oil could be limited.
Next 24 Hours Bias
Medium Bullish
