IC Markets Asia Fundamental Forecast | 22 March 2024
What happened in the US session?
In a surprise move, the Swiss National Bank (SNB) unexpectedly cut its key policy rate by 25 basis points, lowering it from 1.75% to 1.50%. For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability. The policy rate cut also supports economic activity and thus ensures that monetary conditions remain appropriate. This easing of monetary policy by the SNB initially weakened the Swiss franc, sending USD/CHF as high as 0.8975 in the immediate aftermath of the release of the statement. This currency pair hit an overnight high of 0.8994 and is likely to climb higher today.
Moving over to the UK, the Bank of England (BoE) kept its official bank rate on hold at 5.25% with a majority vote of 8 to 1 with one member preferring to reduce the bank rate by 25 basis points, to 5.0%. The Pound took a hit as GBP/USD tumbled from 1.2780 to an overnight low of 1.2650 following this dovish outcome.
Meanwhile, unemployment claims in the US continue to signal a resilient labour market as the figure of 210K came in lower than the estimate of 212K while the flash Composite PM reading for the month of March also beat market expectations to highlight strong economic expansion. Both of these data points functioned as a bullish catalyst for the dollar index (DXY) as it broke above the 104-threshold overnight.
What does it mean for the Asia Session?
Despite a dovish outcome at the recent FOMC meeting, dollar bulls have returned following strong US data overnight as the DXY was rising towards 104.20 this morning while gold prices came under pressure. Spot prices for this precious metal dipped under the threshold of $2,200/oz to hit a low of $2,165/oz during the US session. Overhead pressures remain for gold and it could resume the pullback as the day progresses.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Speaks (1:00 pm GMT)
FOMC Member Barr Speaks (4:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Chairman Jerome Powell is due to deliver the opening remarks at a Fed Listens event in Washington DC while Federal Reserve Governor Michael Barr will be speaking on international economic and monetary design at the Transnational Law Virtual Conference where audience questions are expected. Following Wednesday’s FOMC press conference, traders will be looking out for any fresh clues from the Fed Chair as well as Governor Barr with respect to the outlook on monetary policy. Once again, they have the ability to jawbone bond yields and the dollar towards their intended direction whether it’s lower or 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
Fed Chair Powell Speaks (1:00 pm GMT)
FOMC Member Barr Speaks (4:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Chairman Jerome Powell is due to deliver the opening remarks at a Fed Listens event in Washington DC while Federal Reserve Governor Michael Barr will be speaking on international economic and monetary design at the Transnational Law Virtual Conference where audience questions are expected. Following Wednesday’s FOMC press conference, traders will be looking out for any fresh clues from the Fed Chair as well as Governor Barr with respect to the outlook on monetary policy. Once again, they have the ability to jawbone bond yields and the dollar towards their intended direction whether it’s lower or higher.
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 yesterday’s blowout employment figures, the Aussie has reversed all of its prior gains as it dived from 0.6600 to fall under 0.6550 as Asian markets came online. This currency pair was under heavy selling pressure and this bearish momentum is likely to extend further today.
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
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Along with its Pacific neighbour, the Kiwi was one of the weakest currency pairs at the beginning of the Asia session. Strong overhead pressures continue to build for the Kiwi as it tumbled towards the 0.6000-threshold.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
National Core CPI (11:30 pm GMT 21st March)
What can we expect from JPY today?
Japan’s national core CPI rose to an annual rate of 2.8% in February which was in line with market estimates. This index jumped from 2.0% from the previous month to mark the highest reading in four months. This re-acceleration in core inflation raises concerns that the Bank of Japan (BoJ) will now be forced to maintain a hawkish stance and potentially raise its key policy rate once more. The Japanese yen strengthened upon this news release with USD/JPY dropping from 151.85 to slide under 151.50 – this currency pair could continue to edge lower for the first half of the day.
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
Weak Bullish
The Euro (EUR)
Key news events today
German ifo Business Climate (9:00 am GMT)
What can we expect from EUR today?
The German ifo Business Climate has stabilized over the last couple of months as sentiment among German companies has brightened somewhat due to lower levels of pessimistic expectations. The manufacturing sector declined while the business climate in the services sector improved. Should the readings for the month of March beat market expectations, it could provide a much-needed lift 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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
In a surprise move, the Swiss National Bank (SNB) unexpectedly cut its key policy rate by 25 basis points, lowering it from 1.75% to 1.50%. For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability. The policy rate cut also supports economic activity and thus ensures that monetary conditions remain appropriate. This easing of monetary policy by the SNB initially weakened the Swiss franc, sending USD/CHF as high as 0.8975 in the immediate aftermath of the release of the statement. This currency pair hit an overnight high of 0.8994 and is likely to climb higher today.
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
Retail Sales (7:00 am GMT)
What can we expect from GBP today?
The Bank of England (BoE) kept its official bank rate on hold at 5.25% with a majority vote of 8 to 1 with one member preferring to reduce the bank rate by 25 basis points, to 5.0%. The Pound took a hit as GBP/USD tumbled from 1.2780 to an overnight low of 1.2650 following this dovish outcome.
Retail sales in the UK rebounded strongly in January, increasing 3.4% MoM following December’s steep decline of 3.3%. The estimate for February points to choppy sales figures as it is now forecasted to tumble 0.4%. Should sales unexpectedly disappoint market expectations, the Pound is likely to be hit again causing GBP/USD to resume its downward slide.
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
Retail Sales (12:30 pm GMT)
What can we expect from CAD today?
After growing strongly for the month of December (rising 0.9% MoM), Canada’s retail sales are now expected to fall 0.4% in January to mark the first decline in five months. This would also register the largest monthly drop since March 2023. Should sales print worse than originally anticipated, the Loonie could face heavy selling pressures causing USD/CAD to potentially move higher.
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 grew in the fourth quarter by more than expected, although the pace remained weak and below potential.
- CPI inflation eased to 2.9% in January as goods price inflation moderated further but shelter price inflation remains elevated and is the biggest contributor to inflation.
- Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3.0% to 3.5% range, and the share of CPI components growing above 3.0% declined but is still above the historical average. The Bank continues to expect inflation to remain close to 3.0% during the first half of this year before gradually easing.
- 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
Medium Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices pulled back overnight on news of growing hopes for a ceasefire in Gaza as well as a stronger dollar. A Reuters report stated that the US is set to table a U.N. draft resolution on Friday demanding an immediate ceasefire in Gaza lasting about six weeks which has overshadowed the shrinking the inventory levels as reported by the API and EIA earlier this week – higher drawdowns in these stockpiles typically signal stronger demand for crude oil in the US. WTI oil retreated away from the $82-level and dropped towards $81 per barrel as Asian markets came online.
Next 24 Hours Bias
Medium Bearish
