IC Markets Asia Fundamental Forecast | 24 September 2024
What happened in the U.S. session?
Composite PMI activity in the U.S. continued to remain robust in September with another strong reading of 54.3 to mark the ninth consecutive month of expansion. Although the manufacturing sector contracted further falling from 47.9 to 47.0, roaring services activity once again propelled overall PMI activity. However, business optimism and future expectations waned due to the heightened uncertainty ahead of the U.S. Presidential elections in November. The dollar index (DXY) initially jumped from 100.81 to 101.01 following this data release but the upward move was short-lived. This index proceeded to reverse and drop to an overnight low of 100.75 before retracing higher to settle around 100.90 by the end of this session.
What does it mean for the Asia Session?
The Reserve Bank of Australia (RBA) will release its monetary policy statement this morning where they are widely expected to hold the cash rate steady at 4.35% – this would mark the seventh consecutive pause. This central bank remains worried as inflation remains above their 2 to 3% target and reiterated the need to stay vigilant to upside inflation risks in the minutes of the previous meeting. Should the RBA indeed hold rates at current levels while markets infer the statement and Governor Michele Bullock’s press conference as hawkish, the Aussie is likely to see strong tailwinds following these events.
The Dollar Index (DXY)
Key news events today
CB Consumer Confidence (2:00 pm GMT)
What can we expect from DXY today?
The Conference Board (CB) Consumer Confidence rose slightly from 101.9 in July to 103.3 in August but consumers showed more concerns on the strength of the labour market. September’s estimate of 103.5 points to a somewhat unchanged reading, suggesting that the American consumer is cautiously optimistic at the present moment. Should this survey surprise market expectations to the upside, it could function as a near-term tailwind for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range was reduced by 50 basis points to 4.75% to 5.00% on 18th September in an 11 to 1 vote with Governor Michelle Bowman dissenting, preferring to cut rates by a smaller amount.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.
- The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have slowed, and the unemployment rate has moved up but remains low.
- Inflation has made further progress toward the Committee’s 2% objective but remains somewhat 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 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 slowed 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 6 to 7 November 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
CB Consumer Confidence (2:00 pm GMT)
What can we expect from Gold today?
The Conference Board (CB) Consumer Confidence rose slightly from 101.9 in July to 103.3 in August but consumers showed more concerns on the strength of the labour market. September’s estimate of 103.5 points to a somewhat unchanged reading, suggesting that the American consumer is cautiously optimistic at the present moment. Should this survey surprise market expectations to the upside, it could function as a near-term tailwind for the dollar – a move that would apply pressure on gold prices.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Announcement (4:30 am GMT)
RBA Press Conference (5:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) will release its monetary policy statement this morning where they are widely expected to hold the cash rate steady at 4.35% – this would mark the seventh consecutive pause. This central bank remains worried as inflation remains above their 2 to 3% target and reiterated the need to stay vigilant to upside inflation risks in the minutes of the previous meeting. Should the RBA indeed hold rates at current levels while markets infer the statement and Governor Michele Bullock’s press conference as hawkish, the Aussie is likely to see strong tailwinds following these events.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35% on 6th August, marking the sixth consecutive pause.
- Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but it still remains above the midpoint of the 2 to 3% target range.
- The CPI rose by 3.9% over the year to the June quarter, demonstrating that inflation is proving persistent. In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters while quarterly underlying CPI inflation has fallen very little over the past year.
- The central forecasts set out in the latest SMP are for inflation to return to the target range of 2 to 3% in late 2025 and approach the midpoint in 2026. This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought.
- Momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure. In addition, there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.
- Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range while recent data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
- Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range and will rely upon the incoming data and the evolving assessment of risks to guide its decisions.
- Next meeting is on 24 September 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 rose to an overnight high of 0.6280 before pulling back slightly. This currency pair was trading around 0.6265 at the beginning of the Asia session but should remain elevated as the day progresses – these are the support and resistance levels for today.
Support: 0.6160
Resistance: 0.6340
Central Bank Notes:
- The Monetary Policy Committee agreed to reduce the OCR by 25 basis points, bringing it down to 5.25% in August as inflation converges on target.
- The Committee is confident that inflation is returning to within its 1-3% target band as surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation.
- Economic growth remains below trend and inflation is declining across advanced economies – imported inflation into New Zealand has declined to be more consistent with pre-pandemic levels.
- Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity.
- Consumer price inflation in New Zealand is expected to remain near the target mid-point over the foreseeable future.
- A broad range of high-frequency indicators point to a material weakening in domestic economic activity in recent months – these include various survey measures of business activity, electronic card transactions, vehicle traffic, house sales, filled jobs, and job vacancies; these indicators collectively provide a consistent signal that the economy contracted in recent months.
- The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2% target.
- Next meeting is on 9 October 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Composite PMI (12:30 am GMT)
BoJ Gov Ueda Speaks (5:05 am GMT)
What can we expect from JPY today?
Japan’s financial markets resumed trading on Tuesday following yesterday’s closure for the Autumn Equinox festival. The flash Composite PMI for the month of September is likely to show the manufacturing sector contracting for the third month in a row while services activity should notch its third consecutive month of expansion. A weaker-than-anticipated flash result could weigh on the yen and potentially function as a near-term bullish catalyst for USD/JPY.
Following last week’s monetary policy announcement, Bank of Japan (BoJ) Governor Kazuo Ueda will be speaking at a meeting with business leaders in Osaka where he could share further insights on the outlook for future monetary policy action by this central bank. Higher volatility for the yen can most certainly be expected during this meeting.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%
- The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been in the range of 2.5 to 3.0% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a passthrough to consumer prices of cost increases led by the past rise in import prices have waned.
- Meanwhile, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- In the second half of the projection period of the July 2024 Outlook for Economic Activity and Prices, it is likely to be at a level that is generally consistent with the price stability target.
- Japan’s economy has recovered moderately, although some weakness has been seen in part, but it is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 31 October 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Germany ifo Business Climate (8:00 am GMT)
What can we expect from EUR today?
Business conditions in Germany have deteriorated over the past four months falling to 86.6 in August to mark the lowest reading since February. Ifo president Clemens Fuest expressed concern in August noting that “the German economy is increasingly entering a crisis“. Should business conditions decline even further, the Euro could face strong headwinds during the European trading hours.
Central Bank Notes:
- The Governing Council today decided to reduce the three key ECB interest rates on 12th September, after holding rates steady in July.
- 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 3.65%, 3.90% and 3.50% respectively.
- Recent inflation data have come in broadly as expected, and the latest ECB staff projections see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.
- For core inflation, the projections for 2024 and 2025 have been revised up slightly, as services inflation has been higher than expected. At the same time, staff continue to expect a rapid decline in core inflation, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026.
- ECB staff projections forecast that the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026 which is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- 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 17 October 2024.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The franc strengthened on Monday causing USD/CHF to fall as low as 0.8456. This currency pair was trading around 0.8470 as Asian markets came online but overhead pressures could continue to build today – these are the support and resistance levels for today.
Support: 0.8430
Resistance: 0.8560
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
- The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
- The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
- Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
- Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Next meeting is on 26 September 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?
Cable hit an overnight high of 1.3359 before settling slightly lower. This currency pair was trading around 1.3345 at the beginning of the Asia session and should remain elevated today – these are the support and resistance levels for today.
Support: 1.3260
Resistance: 1.3430
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to maintain Bank Rate at 5.0% while one member preferred to reduce Bank Rate by 25 basis points to 4.75%, on19th September 2024.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B.
- Twelve-month CPI inflation had been 2.2% in August and July, slightly lower than August Report expectations. Consumer core goods and food price inflation had remained subdued as the cost pressures from previous global shocks had unwound further, and producer price levels had been broadly flat while energy prices had continued to drag on CPI inflation.
- Services price inflation had increased to 5.6% in August compared to 5.2% in July and 5.7% in June. This was slightly lower in August than had been expected at the time of the August Report. There had been volatility in a number of services sub-components in the July and August outturns, including accommodation and catering prices and airfares.
- GDP had increased by 0.6% in 2024 Q2, 0.1 percentage points lower than had been expected in the August Monetary Policy Report. That had followed 0.7% growth in Q1, but Bank staff judged that the underlying pace of growth had been somewhat weaker during the first half of the year.
- Headline GDP growth was expected to return to its underlying pace of around 0.3% per quarter in the second half of the year. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained tight by historical standards.
- Monetary policy decisions have been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis; policy has been acting to ensure that inflation expectations remain well anchored.
- In the absence of material developments, a gradual approach to removing policy restraint remains appropriate while monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
- The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- Next meeting is on 7 November 2024.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
BoC Gov Macklem Speaks (5:10 pm GMT)
What can we expect from CAD today?
Bank of Canada (BoC) Governor Tiff Macklem will be participating in a fireside chat at the Institute of International Finance and Canadian Bankers Association Canada Forum in Toronto where audience questions are expected. The Loonie could face higher volatility during this event – USD/CAD was trading around 1.3530 as Asian markets came online.
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points for the third consecutive meeting to 4.25% while continuing its policy of balance sheet normalization on 4th September.
- Canada’s economy grew 2.1% in the second quarter of 2024, led by government spending and business investment.
- This second quarter GDP growth was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July.
- As expected, inflation slowed further to 2.5% in July. The Bank’s preferred measures of core inflation averaged around 2.5% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.
- High shelter price inflation is still the biggest contributor to total inflation but is starting to slow while inflation also remains elevated in some other services.
- The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity.
- The Governing Council is carefully assessing these opposing forces on inflation and monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.
- The Bank remains resolute in its commitment to restoring price stability for Canadians.
- Next meeting is on 23 October 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
API Crude Oil Stocks (8:30 pm GMT)
What can we expect from Oil today?
Oil prices fell on Monday as global demand concerns were compounded by a combination of disappointing flash PMI activity out of the Euro Area and a frail China economy. Composite PMI activity unexpectedly slipped into contraction for the first time in seven months while China – the world’s largest oil importer – is struggling to rekindle growth despite a series of economy-boosting policies by the government. WTI oil declined almost 0.6% overnight as it dropped as low as $69.49 before retracing slightly higher – this benchmark was trading around $70.50 per barrel at the onset of the Asian trading hours.
Moving over to U.S. inventory levels, the API stockpiles experienced an unexpected inventory build of 1.96M barrels of crude following three consecutive weeks of decline. Should this agency register another round of higher-than-anticipated levels, it could function as a near-term bearish catalyst for crude prices later today.
Next 24 Hours Bias
Medium Bearish
