IC Markets Asia Fundamental Forecast | 27 December 2023
What happened in the US session?
As expected on Boxing Day, trading activity and volume was lower than usual with the US financial markets being one of the few major exchanges that reopened yesterday. The dollar index (DXY) began to edge lower at the beginning of the US session and dipped below 101.50 by the end of the session.
What does it mean for the Asia Session?
The DXY gapped higher to climb as high as 101.80 as Asia came online. It then began to pullback and was attempting to close this gap as trading got underway. Downward pressures remain for the DXY but we can expect some retracement to the upside along the way.
The Dollar Index (DXY)
Key news events today
Richmond Manufacturing Index (3:00 pm GMT)
What can we expect from DXY today?
The Federal Reserve Bank of Richmond will release its survey for December’s manufacturing activity later today. Activity slowed in November as most firms continued to report declining backlogs and vendor lead time, indicating softening demand for this sector.
Meanwhile, the average growth rate of prices paid was more or less flat in November, while the average growth rate of prices received edged down slightly – which highlights the ongoing easing of inflationary pressures. A weaker-than-expected survey findings for the month of December would signal a continued weakness in manufacturing activity. The DXY is expected to remain under pressure today.
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
Weak Bearish
Gold (XAU)
Key news events today
Richmond Manufacturing Index (3:00 pm GMT)
What can we expect from Gold today?
The Federal Reserve Bank of Richmond will release its survey for December’s manufacturing activity later today. Activity slowed in November as most firms continued to report declining backlogs and vendor lead time, indicating softening demand for this sector.
Meanwhile, the average growth rate of prices paid was more or less flat in November, while the average growth rate of prices received edged down slightly – which highlights the ongoing easing of inflationary pressures. A weaker-than-expected survey findings for the month of December would signal a continued weakness in manufacturing activity. With the dollar remaining under pressure, gold prices are likely to edge higher today.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie was trading around 0.6820 at the start of the Asia session and is expected to remain elevated.
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?
In a similar fashion to its Pacific neighbour, the Kiwi has made considerable gains since mid-December and is expected to remain elevated. It was trading around 0.6320 at the start of the Asia session.
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
Retail Sales (11:50 pm GMT)
What can we expect from JPY today?
Retail sales have declined for two consecutive months with October’s sales figures plummeting 1.6% MoM for the month of October. This was the largest monthly drop in 2023, with the second largest decline occurring in April where sales fell 1.1% MoM. Should sales fall for the third month in a row, the ultra-dovish stance by the Bank of Japan sees further vindication and could provide some lift for USD/JPY.
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
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro attempted to break above the 1.1050-threshold overnight but failed to do so. It retreated away from this level by the end of the US session and was sliding lower as Asia came online.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The recent strength of the Swiss franc has caused USD/CHF to remain under constant downward pressure. This currency pair was trading around 0.8540 at the start of the Asia session and could retrace slightly higher before resuming the downtrend.
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
No major news events.
What can we expect from GBP today?
The Pound has faced strong resistance around the 1.2750 region recently and it has failed to breach this level twice thus far. It could make a third attempt today to finally climb above this resistance.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Canadian dollar has gained considerably causing USD/CAD to dip under 1.3200 as Asia came online. Further downward pressures remain for this currency pair and it is likely to slide lower as the day progresses.
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
API Weekly Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
The ongoing drone attacks in the Red Sea and escalating tensions in the Middle East lifted crude prices overnight. The prospect of a prolonged conflict in Gaza and continued attacks on commercial vessels remain major drivers of sentiment as WTI oil briefly rose above $76 per barrel overnight before pulling back slightly – it was trading around $75.30 as Asian markets came online.
Meanwhile, the API stockpile unexpectedly increased last week as US demand for crude oil eased. Inventory levels could once again rise as lower demand is usually expected over the festive period and create some downward pressure on prices.
Next 24 Hours Bias
Weak Bullish
