IC Markets Asia Fundamental Forecast | 29 December 2023
What happened in the US session?
After trending lower over the past five weeks, unemployment claims edged higher to 218k versus the estimate of 211k – this latest print marked the highest number of claims in three weeks. Higher-than-expected claims could signal some weakness in the US labour market and prolonged uptrend could be a distress signal moving forward. The dollar index (DXY) hit a high of 101.30 before sliding lower towards 101.20.
What does it mean for the Asia Session?
The DXY was edging lower towards 101at the beginning of the Asia session while spot gold prices found support around $2,065/oz after pulling back overnight. This precious metal climbed higher and was trading around $2,070/oz. Meanwhile, crude oil prices tumbled overnight with WTI oil dipping under $72 per barrel.
The Dollar Index (DXY)
Key news events today
Chicago PMI (2:45 pm GMT)
What can we expect from DXY today?
After 14 straight months of contraction, the Chicago PMI surged from 44.0 to 55.8 for the month of November, marking the highest level since May 2022. This expansion was led by the Production, New Orders, Inventories, Supplier Deliveries and Employment components. December’s estimate of 50.1 points to a second consecutive month of growth, albeit at a slower rate. Another robust PMI reading could lift the dollar during the US session.
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
Medium Bearish
Gold (XAU)
Key news events today
Chicago PMI (2:45 pm GMT)
What can we expect from Gold today?
After 14 straight months of contraction, the Chicago PMI surged from 44.0 to 55.8 for the month of November, marking the highest level since May 2022. This expansion was led by the Production, New Orders, Inventories, Supplier Deliveries and Employment components. December’s estimate of 50.1 points to a second consecutive month of growth, albeit at a slower rate. Another robust PMI reading could lift the dollar and potentially increase the downward pressure on gold during the US session.
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 dropped towards 0.6825 overnight but reversed around this level to climb higher as Asian markets came online. This currency was edging higher towards 0.6850 and is likely to remain elevated today.
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?
The Kiwi fell towards 0.6330 overnight but reversed around this level to climb higher as Asian markets came online. This currency was edging higher towards 0.6350 and is likely to remain elevated 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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen gained significantly versus the dollar overnight with USD/JPY falling as low as 140.30. This currency pair retraced higher towards 141.60 as Asian markets came online. Overhead pressures remain for this currency pair and the downtrend is likely to resume today.
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
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro fell towards 1.1060 overnight before reversing to climb higher as Asian markets came online. This currency was trading around 1.1075 and could edge higher as the day progresses.
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 dive as low as 0.8330 overnight before reversing at the start of the Asia session. This currency pair rose as high as 0.8450 but the downtrend is likely to resume 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
Strong Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound pulled back overnight but it found support around the 1.2730 region as Asian markets came online. It could edge higher as the final trading day of 2023 comes to an end.
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 recent strength of the Loonie has caused USD/CAD to dive under 1.3250 overnight. It was trading around 1.3225 at the beginning of the Asia session but this currency pair continues to face immense downward pressure.
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
Strong Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The EIA crude oil inventories experienced a much larger than expected fall with 7.1M barrels of crude being drawn versus the estimate of a 2.7M drawdown. However, this surprise draw could not keep crude prices propped up as WTI oil shed more than 3% overnight, falling under $72 per barrel.
The easing of shipping disruptions in the Red Sea was the primary reason for the pullback in prices. As more shipping companies announce that they are ready to transit through the Red Sea route once again, this is likely to create further downward pressure on prices.
Next 24 Hours Bias
Medium Bearish
