IC Markets Asia Fundamental Forecast | 13 June 2024
What happened in the U.S. session?
U.S. inflation came in softer than anticipated for the month of May as headline and core CPI both eased on a monthly and annualized basis as well as coming in lower than their respective forecasts. This result triggered a massive sell-off for the dollar along with a plunge in U.S. Treasury bond yields. The dollar index (DXY) was hovering above 105.10 prior to the release of the CPI data and it promptly dived as low as 104.25 while gold prices spiked from $2,315/oz to hit $2,341/oz in the immediate aftermath.
Moving over to another equally critical news event, the Federal Reserve held its Fed Funds rate at 5.25 to 5.5% for the seventh consecutive meeting as widely expected. However, the Summary of Economic Projections (SEP) indicated just one interest rate cut in 2024 followed by two rate cuts in 2025 while Chairman Jerome Powell communicated a hawkish outlook during his press conference, indicating that some FOMC members called for no cuts this year. In addition, the Fed also raised its inflation outlook for the remainder of 2024, which supports the projection for just one cut this year.
To sum up, this was a pretty hawkish FOMC statement and press conference which reversed some of the earlier moves in the dollar and gold. The DXY stabilized around 104.30 to stage a rebound to climb back above 104.70 while prices for spot gold dropped towards $2,310/oz.
What does it mean for the Asia Session?
Australia will release its Labour Force report for the month of May where the unemployment rate is expected to edge lower from 4.1% to 4.0% while 30.5K jobs are anticipated to be added to the economy. The Aussie could see strong gains should markets receive a strong set of figures this morning.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The Producer Price Index (PPI) – which measures wholesale inflation – accelerated strongly in the first four months of 2024. May’s estimates for headline and core PPI finally show prices increasing at a slower rate. Should the latest PPI readings follow the same trend as yesterday’s CPI print, the dollar could face further overhead pressures.
Meanwhile, unemployment claims have trended higher over the last couple of weeks with the current reading of 229K coming in higher than the 4-week average of 221K as well as the 12-week average of 216K. This week’s estimate of 225K points to this upward trend gaining further traction, a result that would once again put pressure on the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the seventh 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 modest 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 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 and 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%.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and 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.
- 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 30 to 31 July 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
The Producer Price Index (PPI) – which measures wholesale inflation – accelerated strongly in the first four months of 2024. May’s estimates for headline and core PPI finally show prices increasing at a slower rate. Should the latest PPI readings follow the same trend as yesterday’s CPI print, the dollar could face further overhead pressures.
Meanwhile, unemployment claims have trended higher over the last couple of weeks with the current reading of 229K coming in higher than the 4-week average of 221K as well as the 12-week average of 216K. This week’s estimate of 225K points to this upward trend gaining further traction, a result that would once again put pressure on the dollar to lift gold prices.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (1:30 am GMT)
What can we expect from AUD today?
Australia will release its Labour Force report for the month of May where the unemployment rate is expected to edge lower from 4.1% to 4.0% while 30.5K jobs are anticipated to be added to the economy. The Aussie could see strong gains should markets receive a strong set of figures 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 combination of softer-than-anticipated CPI readings and a hawkish FOMC meeting caused the Kiwi whipsaw wildly as it surged from 0.6135 to as high as 0.6221 before reversing to fall under 0.6190. This currency pair was trading around 0.6170 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.6100
Resistance: 0.6220
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Following the overnight hawkish FOMC meeting and soft U.S. CPI data, demand for the dollar whipsawed causing USD/JPY to dive from 157.20 to 155.72 before reversing sharply to recover some of the initial losses. This currency pair was trading around 156.90 as Asian markets came online – these are the support and resistance levels for today.
Support: 155.70
Resistance: 157.50
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
No major news events.
What can we expect from EUR today?
The combination of softer-than-anticipated CPI readings and a hawkish FOMC meeting caused the Euro whipsaw wildly as it surged from 1.0765 to as high as 1.0852 before reversing to drop towards 1.0800. This currency pair was trading around 1.0805 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.0790
Resistance: 1.0860
Central Bank Notes:
- The Governing Council today decided to lower the three key ECB interest rates by 25 basis points after nine months of holding rates steady.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.
- Since September 2023, inflation has fallen by more than 2.5% and the inflation outlook has improved markedly while underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.
- At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year – the latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections.
- Projections now show headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026 while economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
- The Council also confirmed that it will reduce the Eurosystem’s holdings of securities under the pandemic emergency purchase programme (PEPP) by €7.5 billion per month on average over the second half of the year.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 18 July 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 the overnight hawkish FOMC meeting and soft U.S. CPI data, demand for the dollar whipsawed causing USD/CHF to plunge from 0.8950 to a low of 0.8893 before staging a rebound to recover the initial losses. This currency pair was trading around 0.8950 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.8880
Resistance: 0.8990
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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The combination of softer-than-anticipated CPI readings and a hawkish FOMC meeting caused Cable to whipsaw wildly as it surged from 1.2760 to a high of 1.2860 before reversing sharply to fall under 1.2800. This currency pair was trading around 1.2785 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.2755
Resistance: 1.2855
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
No major news events.
What can we expect from CAD today?
Following the overnight hawkish FOMC meeting and soft U.S. CPI data, demand for the dollar whipsawed causing USD/CAD to plunge from 1.3740 to a low of 1.3680 before staging a rebound to recover the initial losses. This currency pair was trading around 1.3740 once again as Asian markets came online – these are the support and resistance levels for today.
Support: 1.3680
Resistance: 1.3780
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.75% while continuing its policy of balance sheet normalization.
- Canada’s economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR but consumption growth was solid at about 3%, and business investment and housing activity also increased.
- Inflation remains above the 2% target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.
- CPI inflation has eased from 3.4% in December to 2.7% in April while the preferred measures of core inflation have come down from about 3.5% last December to about 2.75% in April and the 3-month rate of core inflation slowed from about 3.5% in December to under 2% in March and April.
- In the labour market, businesses are continuing to hire workers as employment has been growing, but at a slower pace than the working-age population while elevated wage pressures look to be moderating gradually.
- The Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
- Next meeting is on 24 July 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The EIA inventories experienced a surprise build of 3.7M barrels of crude versus a drawdown of 1.2M. Along with ample supply and higher borrowing costs in the U.S. due to the Federal Reserve projecting just one rate cut in 2024, oil prices came under pressure. WTI oil’s recent rise stalled around $79.45 per barrel and slid towards the $78-mark. Prices could remain under pressure today but the uptrend looks intact.
Next 24 Hours Bias
Weak Bearish
