IC Markets Asia Fundamental Forecast | 5 March 2024 – IC Markets

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What happened in the US session?

There was no major news overnight which led to the dollar index (DXY) ranging between a high of 103.95 and a low of 103.73. However, gold jumped above the threshold of $2,100/oz to touch $2,120/oz on market anticipation of interest rate cuts by the Federal Reserve ahead of a testimony by Chairman Jerome Powell later this week while prices for crude oil pulled back overnight with WTI oil slipping under $79 per barrel.

What does it mean for the Asia Session?

Services activity in Australia returned to expansion in February following four consecutive months of contraction. The services PMI reading increased from 49.1 in the previous month to 53.1 as incoming new business rose at the fastest pace since May 2022 while employment growth also accelerated. However, the latest upturn in services activity also caused inflation rates for this sector to increase. The Aussie was hovering above 0.6500 as Asian markets came online and could edge higher on the back of strong services activity.

The Dollar Index (DXY)

Key news events today

ISM Services PMI (3:00 pm GMT)

What can we expect from DXY today?

The ISM Services PMI has shown this sector expanding over the past 13 months to pull up overall economic growth in the US and February’s estimate of 5.9 points to an extension of this trend. The prices component has also expanded for 80 months straight with January’s reading of 64.0 marking the largest increase since August 2012. Should the services PMI and prices component both signal strong gains for the month of February, we could see demand for the US pick up later 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

Weak Bullish


Gold (XAU)

Key news events today

ISM Services PMI (3:00 pm GMT)

What can we expect from Gold today?

The ISM Services PMI has shown this sector expanding over the past 13 months to pull up overall economic growth in the US and February’s estimate of 5.9 points to an extension of this trend. The prices component has also expanded for 80 months straight with January’s reading of 64.0 marking the largest increase since August 2012. Should the services PMI and prices component both signal strong gains for the month of February, we could see demand for the US pick up and add pressure on gold later today.

Next 24 Hours Bias

Weak Bearish


The Australian Dollar (AUD)

Key news events today

Services PMI (10:00 pm GMT 4th March)

What can we expect from AUD today?

Services activity in Australia returned to expansion in February following four consecutive months of contraction. The services PMI reading increased from 49.1 in the previous month to 53.1 as incoming new business rose at the fastest pace since May 2022 while employment growth also accelerated. However, the latest upturn in services activity also caused inflation rates for this sector to increase. The Aussie was hovering above 0.6500 as Asian markets came online and could edge higher on the back of strong services activity.

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?

After falling sharply last week, the Kiwi found support around the region of 0.6080 and has managed to hover above this level since last Friday. Overhead pressures remain for this currency but it could retrace higher following the strong sell-off.

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 4th March)

What can we expect from JPY today?

Following seven months of slower inflation growth, the Tokyo core CPI accelerated from 1.8% YoY in the previous month to 2.5% YoY in February to register the highest reading in four months. With the latest reading moving away from the Bank of Japan’s target of 2%, it puts pressure on the central bank to move away from its ultra-loose monetary policy and potentially consider a first interest rate hike. Demand for the Japanese yen could pick up today and potentially drive USD/JPY lower – it was trading around 150.45 as Asian markets came online.

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

Weak Bullish


The Euro (EUR)

Key news events today

Composite PMI (9:00 am GMT)

What can we expect from EUR today?

The final Composite PMI result for February will be released today and it is likely to remain unchanged at 48.9 to mark the ninth consecutive month of contraction. Overall activity has been weak in the Eurozone, especially for the manufacturing sector, and could potentially place the Euro under pressure during the European trading hours.

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 Bearish


The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Inflation in Switzerland grew 0.6% MoM in February while the core rose 0.7% MoM to mark the largest monthly gains in over a year. Despite the larger-than-expected increases, inflation continued to ease further with headline CPI slowing to an annual rate of 1.2% from 1.3% while core CPI eased to 1.1% from 1.2%. The Swiss franc initially strengthened quite strongly causing USD/CHF to drop from 0.8830 to as low as 0.8806 in the immediate aftermath of this data release. However, this currency pair rebounded quite strongly to recover the earlier losses to move as high as 0.8864 overnight. It was trading around 0.8855 at the beginning of the Asia session and could remain elevated today.

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

Composite PMI (9:30 am GMT)

What can we expect from GBP today?

February’s final Composite PMI reading is expected to show economic activity expanding for the fourth month in a row. After contracting in the third quarter of 2023, the services and manufacturing sectors have both rebounded quite strongly in the final quarter and the momentum has continued in the first couple of months of the new year. The Pound is likely to remain buoyed by the continued growth in overall PMI activity today.

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 Bearish


The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

The threshold of 1.3600 has acted as a near-term resistance for USD/CAD last week causing this currency pair to fall under 1.3550 but it climbed higher to rise towards 1.3580 overnight. It was trading around 1.3570 as Asian markets came online and could continue to move higher 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 Bullish


Oil

Key news events today

API Crude Oil Stock (9:30 pm GMT)

What can we expect from Oil today?

The API stockpiles have grown much stronger than anticipated over the past three weeks – a sign that demand for crude oil in the US is waning. Should stockpiles increase more than expected once more, it could signal a persistent weakness in demand coming from stateside. Prices for crude oil pulled back overnight with WTI oil slipping under $79 per barrel and it continued to slide lower at the beginning of the Asia session.

Next 24 Hours Bias

Weak Bearish


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