IC Markets Asia Fundamental Forecast | 5 June 2024
What happened in the U.S. session?
Job openings in the U.S. continue to decline as the JOLTS report showed vacancies falling to its lowest level since 2021 with a reading of 8.06M in April, missing market expectations of 8.37M. In addition, the figures for March were revised lower from 8.49M down to 8.36M to highlight signs of cooling in the labour market.
Meanwhile, new orders for manufacturing goods rose 0.7% MoM in April, matching market forecasts but growth for the previous month was revised significantly lower from 1.6% down to 0.8%. This latest print marked the third consecutive month of growth for factory orders but the sharp downward revision for the month of March casts some doubts on whether similar revisions will occur over the next couple of months.
The dollar index (DXY) was trading around 104.30 at the beginning of the U.S. session but it tumbled down to 104.04 following the release of the above news as softer macroeconomic data could bring forward a potential rate cut by the Federal Reserve.
What does it mean for the Asia Session?
The Australian economy expanded 0.2% QoQ in the fourth quarter of 2023, coming lower than the market estimates of 0.3%. This was the ninth straight period of quarterly growth but the softest pace in five quarters as household spending was muted while government expenditure slowed considerably and fixed investment fell. The estimate of a 0.2% rise in the first quarter of 2024 points to another steady period of growth. Should the GDP print exceed market expectations, it could trigger a strong demand for the Aussie this morning.
The Dollar Index (DXY)
Key news events today
ADP Employment Report (12:15 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from DXY today?
April’s ADP report showed 192K jobs being added to the U.S. economy, beating its estimate of 175K – this figure nearly matched its 12-month average of 199K job gains. However, the estimate of 175K for the month of May points to a significantly lower reading than the 12-month average as well as the prior month’s reading.
After which, the Institute for Supply Management (ISM) will release its services PMI report where this sector is expected to rebound into expansion following an unexpected contraction in April. The ISM Services PMI is forecasted to jump from 49.4 to 51.0 in May. Should markets see a strong set of results for the ADP and ISM reports, it could function as a strong bullish catalyst for the dollar later today.
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
Weak Bearish
Gold (XAU)
Key news events today
ADP Employment Report (12:15 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from Gold today?
April’s ADP report showed 192K jobs being added to the U.S. economy, beating its estimate of 175K – this figure nearly matched its 12-month average of 199K job gains. However, the estimate of 175K for the month of May points to a significantly lower reading than the 12-month average as well as the prior month’s reading.
After which, the Institute for Supply Management (ISM) will release its services PMI report where this sector is expected to rebound into expansion following an unexpected contraction in April. The ISM Services PMI is forecasted to jump from 49.4 to 51.0 in May. Should markets see a strong set of results for the ADP and ISM reports, it could function as a strong bullish catalyst for the dollar and potentially cause gold prices to tumble later today.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
GDP (1:30 am GMT)
What can we expect from AUD today?
The Australian economy expanded 0.2% QoQ in the fourth quarter of 2023, coming lower than the market estimates of 0.3%. This was the ninth straight period of quarterly growth but the softest pace in five quarters as household spending was muted while government expenditure slowed considerably and fixed investment fell. The estimate of a 0.2% rise in the first quarter of 2024 points to another steady period of growth. Should the GDP print exceed market expectations, it could trigger a strong demand for the Aussie this morning.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the eighth pause out of the last nine board meetings.
- The CPI grew by 3.6% over the year to the March quarter, down from 4.1% cent over the year to December. Underlying inflation was higher than headline inflation and declined by less – this was due in large part to services inflation, which remains high and is moderating only gradually.
- The central forecasts, based on the assumption that the cash rate follows market expectations, are for inflation to return to the target range of 2 to 3% in the second half of 2025, and to the midpoint in 2026.
- In the near term, inflation is forecast to be higher because of the recent rise in domestic petrol prices, and higher than expected services price inflation, which is now forecast to decline more slowly over the rest of the year.
- Inflation is, however, expected to decline over 2025 and 2026.
- 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 18 June 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 hit an overnight high of 0.6182 and this currency pair was trading around 0.6175 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.6155
Resistance: 0.6200
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the seventh meeting in a row and agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual headline CPI inflation returns to the 1 to 3% target range.
- Restrictive monetary policy is contributing to an easing in capacity pressures while headline inflation, core inflation, and most measures of inflation expectations are continuing to decline. However, domestic inflation has fallen more slowly than expected and headline CPI inflation remains above the Committee’s target band.
- Higher dwelling rents, insurance costs, council rates, and other domestic services price inflation have resulted in a slow decline in domestic inflation, posing a risk to inflation expectations.
- GDP declined by 0.1% in the December 2023 quarter with economic growth having now been negative for four of the past five quarters. High interest rates have reduced household spending, as well as residential and business investment, despite very strong population growth. Recent indicators of economic activity have been weak, as expected.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The yen strengthened overnight causing USD/JPY to hit a low of 154.55. This currency pair was trading around 155.33 as Asian markets came online – these are the support and resistance levels for today.
Support: 153.70
Resistance: 156.60
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
Weak Bullish
The Euro (EUR)
Key news events today
S&P Global Composite PMI (8:00 am GMT)
What can we expect from EUR today?
Composite PMI activity is expected to expand for the third month in a row in the Euro Area with a reading of 52.3. Overall output for the manufacturing and services sectors has rebounded and the latest PMI reading could keep the Euro elevated today.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Yesterday’s inflation data showed consumer prices rising 0.3% MoM in May to match the previous month’s reading while coming in line with market estimates while the annualised rate remained unchanged at 1.4% YoY. Concerns on inflationary pressures re-accelerating in Switzerland strengthened the franc and drove USD/CHF as low as 0.8926 during yesterday’s European session. This currency pair was trading around 0.8900 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8850
Resistance: 0.8920
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
Weak Bearish
The Pound (GBP)
Key news events today
S&P Global Composite PMI (8:30 am GMT)
What can we expect from GBP today?
The strong rebound in Composite PMI activity since the end of 2023 has continued into the first half of this year as this index has expanded for five consecutive months. The estimate of 52.8 points to another month of expansion and could keep Cable elevated today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the sixth consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 3.2% in March from 3.4% in February and is expected to return to close to the 2% target in the near term, but increase slightly in the second half of this year to around 2.5% owing to the unwinding of energy-related base effects.
- CPI inflation is projected to be 1.9% in two years’ time and 1.6% in three years in the May Report. With respect to indicators of inflation persistence, services consumer price inflation has declined but remains elevated at 6% in March.
- Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2, stronger than expected in the February Report. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably and will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
BoC Rate Statement (1:45 pm GMT)
BoC Press Conference (2:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) is expected to cut its overnight rate by 25 basis points from 5% down to 4.75% followed by Governor Tiff Macklem’s press conference during the U.S. session. Should the statement and Governor Macklem’s press conference convey a dovish outlook for future monetary policy action, the Loonie is likely to come under intensive selling pressures to potentially boost USD/CAD higher.
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
Weak Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
API stockpiles experienced a surprise build as 4.1M barrels of crude were added to inventories versus the estimate of a 1.9M-drawdown to add further downside pressure on oil prices. Crude hit a 4-month low as OPEC+ members signalled that they plan to scale back some production cuts at some point later this year. WTI oil has already lost more than 5% this week as it dived under $73 per barrel overnight. Should the EIA inventories also register a surprise increase later today, oil prices are likely to come under pressure once again.
Next 24 Hours Bias
Weak Bullish
