What happened in the US session?
The ISM Manufacturing PMI signalled a 16th consecutive month of contraction for this sector with a reading of 47.8 in February which was lower than the estimate of 49.5 and also lower than the previous month’s figure. News orders and backlogs both contracted which highlights the ongoing weakness while the prices component expanded for the second month in a row as raw materials costs appear to be re-accelerating.
During Federal Reserve Governor Christopher Waller’s speech on quantitative tightening in New York last Friday, he stated that “upcoming balance sheet decisions have no bearing on monetary policy” and also pointed to some longer-term issues that he would like the Fed to address, including a reset of the balance sheet towards shorter-term Treasury bills that would better match the short-term policy rate that the Fed controls as its key monetary policy tool.
The dollar index (DXY) hit a high of 104.30 last Friday before falling abruptly to as low as 103.85 before closing at 103.88.
What does it mean for the Asia Session?
With no major news events in the morning, the DXY could continue to edge lower while commodities such as gold and crude oil are expected to continue with their ascends.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The DXY failed to break above 104.30 last week as this level acted as a near-term barrier and caused it to pull back quite strongly to close at 103.90 last Friday. Overhead pressures appear to be building for the dollar and this could cause the DXY to resume its downward slide today.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fourth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- 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. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- 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 19 to 20 March 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold experienced its largest one-day gain since mid-December 2023 to jump strongly last Friday. Spot prices surged past the recent key threshold of $2,050/oz to hit a high of $2,088/oz before closing at $2,085/oz. This precious metal is likely to remain elevated today.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Services PMI (10:00 pm GMT)
What can we expect from AUD today?
Services activity in Australia rebounded strongly in the fourth quarter of 2023 to return to expansion for the month of February. The flash PMI reading of 52.8 was the highest figure in ten months and the final print is unlikely to deviate from this preliminary result. The Aussie could receive a boost following this news release.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi was one of the worst performing currencies last week but it found strong support around the region of 0.6080. With potential short-covering activity taking place after last week’s sell-off of nearly 1.4%, the Kiwi could retrace higher today.
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI (11:30 pm GMT)
What can we expect from JPY today?
The Tokyo core CPI has moderated lower over the last five months with January’s reading coming in at an annual rate of 1.6% – the lowest level since May 2022. However, February’s estimate points to this index accelerating to 2.5% and should the final reading come in higher than anticipated, demand for the Japanese yen could pick to potentially push USD/JPY lower.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: 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 are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- 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 19 March 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Sentix Investor Confidence (9:30 am GMT)
What can we expect from EUR today?
Although the Sentix Investor Confidence remains in negative territory to highlight the pessimistic outlook, it has been improving steadily over the past four months. Major concerns surrounding economic growth in Germany remain but confidence levels are expected to improve in the latest reading. Should this index highlight further pessimism in the Eurozone, the Euro could come under some selling pressure during the European session.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight 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 7 March 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
CPI (7:30 am GMT)
What can we expect from CHF today?
Inflation in Switzerland has eased significantly over the past 12 months with both headline and core CPI printing under 1.3% YoY for the month of January. Should inflationary pressures continue to dissipate strongly, the Swiss franc is likely to face significant selling pressures and could provide a strong tailwind for USD/CHF.
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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound found strong support around 1.2625 in the second half of last week before rising to close at 1.2650. Demand for this currency has returned and it could climb higher as the day progresses.
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% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 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 strengthened last Friday causing USD/CAD to retreat from last week’s high of 1.3600 as this threshold acts as a near-term barrier. This currency pair closed at 1.3555 last Friday and overhead pressures are likely to grow today.
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 has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- 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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices have swung wildly over the last three weeks with WTI oil prices closing at $79.25 per barrel last Friday, jumping almost 4.6% during the week. Higher volatility is expected once more this week as geopolitical tensions and global demand expectations continue to push and pull this commodity.
Next 24 Hours Bias
Weak Bullish
