IC Markets Asia Fundamental Forecast | 3 May 2024
What happened in the US session?
Unemployment claims in the US came lower than its estimate for the fourth week in a row with a print of 208K versus 212K. Lower claims usually signal a robust labour market and typically provide strong near-term tailwinds for the dollar. However, the dollar index (DXY) initially fell slightly from 105.69 to 105.57 before reversing to climb towards 105.90. Demand for the dollar appears to be waning as the DXY reversed from under 106 to drop as low as 105.29 overnight.
What does it mean for the Asia Session?
Despite the better-than-expected claims data, the dollar remains under pressure as the DXY was edging lower this morning while prices for spot gold stabilized around the region of $2,300/oz before moving higher. Crude oil prices continue to face overhead pressures with WTI oil dipping under $79 per barrel before retracing higher towards the $80-mark.
The Dollar Index (DXY)
Key news events today
Non-farm Payrolls (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from DXY today?
Non-farm Payrolls (NFPs) have grown strongly over the past four months to average a monthly gain of 280K over this period. The forecast of 238K highlights a potential slow down in the pace of job growth for the month of April, especially after a blowout figure of 303K in March. Should NFPs miss market expectations while the unemployment rate edges higher from 3.8%, the dollar could experience an intense sell-off during the US session.
The services sector has been pulling up overall economic activity in the US over the past 15 months – a period where the ISM Services PMI has expanded strongly to lead business activity output. The estimate of 52.0 points to another month of expansion in April, rising from 51.4 in March. The prices index – which has also increased over this same period – will be closely monitored as well. With higher prices for raw materials being reported in the equivalent report for the manufacturing sector, another sharp increase in prices for services is certainly going to raise further concerns on inflationary pressures re-accelerating for the Federal Reserve.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the sixth 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 have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been a lack of further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee 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’s assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 11 to 12 June 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
Non-farm Payrolls (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from Gold today?
Non-farm Payrolls (NFPs) have grown strongly over the past four months to average a monthly gain of 280K over this period. The forecast of 238K highlights a potential slow down in the pace of job growth for the month of April, especially after a blowout figure of 303K in March. Should NFPs miss market expectations while the unemployment rate edges higher from 3.8%, the dollar could experience an intense sell-off to potentially boost gold prices during the US session.
The services sector has been pulling up overall economic activity in the US over the past 15 months – a period where the ISM Services PMI has expanded strongly to lead business activity output. The estimate of 52.0 points to another month of expansion in April, rising from 51.4 in March. The prices index – which has also increased over this same period – will be closely monitored as well. With higher prices for raw materials being reported in the equivalent report for the manufacturing sector, another sharp increase in prices for services is certainly going to raise further concerns on inflationary pressures re-accelerating for the Federal Reserve.
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?
Despite the better-than-expected unemployment claims in the US, demand for the dollar was poor which caused the Aussie to hit an overnight high of 0.6573. AUD/USD pulled back towards 0.6560 by the end of the US session before rising strongly once again – this currency pair was trading around 0.6580 as Asian markets came online.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi hit a high of 0.5967 overnight despite lower-than-anticipated unemployment claims in the US before dipping under 0.5950 by the end of the US session. NZD/USD rebounded at the beginning of the Asia session to climb towards 0.5970 and could remain elevated for the initial half of the final trading day of the week.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 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 recent intervention measures by the Bank of Japan (BoJ) on 29th April and 1st May appear to have made some progress in restraining the astronomical rise of USD/JPY. The BoJ is thought to have spent close to $59 billion this week as it attempts to prop up the yen. USD/JPY briefly climbed above the threshold of 160 on 29th April – a 34-year high – before the first round of intervention measures took place. This currency pair has dived nearly 4.5% to lose over 700 pips at its lowest point this week. With markets now wary about any future intervention actions, the yen could steadily strengthen further – USD/JPY was trading around 153.10 as Asian markets came online.
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.
- In a quarterly outlook, the committee revised higher CPI prints for FY 2024 to 2.8% from January’s projections of 2.4%, due to the waning effects of higher import prices and fewer government support measures.
- For 2025, the board expects core inflation to hit 1.9%, slightly higher than its earlier estimates of 1.8%, reflecting a recent rise in oil prices.
- Policymakers cut their 2023 GDP growth forecast to 1.3% from 1.8% and for FY 2024, the bank also slashed its GDP outlook to 0.8% from 1.2%, mainly reflecting lower private consumption.
- Next meeting is on 14 June 2024.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
Unemployment Rate (9:00 am GMT)
What can we expect from EUR today?
Despite the better-than-expected unemployment claims in the US, demand for the dollar was weak which caused the Euro to hit an overnight high of 1.0730. EUR/USD dipped under 1.0720 by the end of the US session before rising strongly once again – this currency pair was trading around 1.0735 as Asian markets came online.
The unemployment rate in the Euro Area has remained relatively steady around 6.5% since December 2022 and the forecast for the month of March points to an unchanged reading of 6.5% once again – this would mark the fifth consecutive month of stable unemployment. If the result surprises markets to the upside, it could function as a near-term tailwind for the Euro during the European trading hours.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 2024.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following yesterday’s hotter-than-anticipated CPI print in Switzerland, the franc strengthened significantly versus the dollar as USD/CHF dived from 0.9160 towards 0.9100 at the beginning of yesterday’s Europe session. This currency pair retraced higher to touch 0.9138 overnight before reversing sharply more. It finally broke under the threshold of 0.9100 at the beginning of the Asia session and is likely to remain under pressure for most parts of 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 Bearish
The Pound (GBP)
Key news events today
Services PMI (8:30 am GMT)
What can we expect from GBP today?
Over the past six months, services activity has pulled up overall growth in the UK. The final reading for the month of April shows an unchanged figure from the flash reading – the report indicated companies noting rising business activity as well as higher consumer spending which were supported by a recovery in broader economic conditions. The Pound was trading around 1.2550 as Asian markets came online and could continue to climb higher today.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Although unemployment claims in the US were lower than anticipated, demand for the dollar waned which drove USD/CAD under the threshold of 1.3700 overnight. This currency pair tumbled hard and was trading around 1.3660 at the beginning of the Asia session – strong headwinds remain and further downside action cannot be ruled out today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil has come under intense selling pressures this week with WTI oil tumbling more than 5.5% this week to mark the worst sell-off since the end of January. Prices for WTI oil fell under $79 per barrel overnight before stabilizing around $79.90 to reverse and edge higher as Asian markets came online. Combined with weaker global demand and a possible economic slowdown in the US, prices have taken a beating this week as the risk premium from the ongoing geopolitical tensions in the Middle East appear to be fading.
Next 24 Hours Bias
Weak Bearish
