Asia Day Ahead: US dollar struggles, NZD/USD retesting upper channel resistance

Market Recap

With the US markets back from its holiday break, greater cues for the risk environment may be presented this week. Thus far, major US indices have gained for the fourth straight week, with the S&P 500 looking on track to retest its year-to-date high at just less than 1.5% away. On the other hand, the VIX has pushed to its lowest level since January 2020 as the broader risk-on sentiments prevail. US yields rose slightly, with the 10-year yields back at its 4.50% level, while the US dollar failed to tap on it for a move higher.

The economic calendar last Friday brought a mixed set of purchasing managers index (PMI) readings out of the US, with its manufacturing sector dipping back into contractionary territory (49.4 versus 49.8 forecast) while services activities held firm (50.8 versus 50.4 forecast). The unchanged composite reading of 50.7 from a month ago, alongside signs of cooling employment in the private sector, could point towards limited upward pressures on inflation and support the Federal Reserve (Fed)’s decision to keep rates on hold.

Ahead this week, the US personal consumption expenditures (PCE) price data, which is the Fed’s favoured inflation metric, will help to clarify the extent to which the disinflation process was continuing. It will also be on watch to provide validation for market pricing of rate cuts as early as June 2024. For now, the US dollar continues to struggle around its 200-day moving average (MA), as recent move to reclaim the key trendline did not manage to find much follow-through. Further downside may leave the 102.00 level on watch next, with a declining moving average convergence/divergence (MACD) pointing to prevailing downside momentum for now.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.16%, ASX -0.18% and KOSPI +0.52% at the time of writing, as sentiments await greater cues for direction with a return of trading volume this week. Singapore’s industrial production data last Friday has surprised significantly on the upside (7.4% year-on-year versus -2.1% forecast), which helped to push back further on recession risks. Any follow-through from recent expansion will be on watch over the coming months to mark an improving trend in global demand.

Aside, the economic calendar this morning saw the contraction in China’s industrial profits ease for the eight straight months on a year-on-year basis (-7.8% in October versus -9% forecast). While conditions have been improving, it also indicates that recovery has been slow. From the series of economic data lately, recovery momentum has also been on-and-off, which will continue to leave market participants seeking for further improvement in the data for some much-needed conviction.

For the China A50, a series of resistance may have to be overcome to mark a trend reversal to the upside. Thus far, the index has struggled to cross a downward trendline resistance, alongside its Ichimoku cloud resistance on the daily chart, which kept its prevailing downward bias intact. Recent attempt to bounce has been short-lived, and a move above the 12,300 level may be warranted to indicate buyers in greater control. For now, further downside may leave its October 2022 bottom on watch for a retest.

On the watchlist: NZD/USD retesting upper channel resistance with RBNZ meeting this week

Ahead of the Reserve Bank of New Zealand (RBNZ) meeting this week, the NZD/USD is back to retest an upper channel trendline resistance at the 0.610 level, which stands alongside its key 200-day MA. Broad expectations are priced for the RBNZ to keep its official cash rate on hold for the fourth straight meeting, with the pair likely to take its cue from the US dollar ahead.

A break above the channel pattern in place since the start of the year may reflect buyers taking control, which may pave the way towards the 0.623 level next. On the downside, the daily Ichimoku cloud zone at the 0.594 level will serve as immediate support to hold.

Friday: DJIA +0.33%; S&P 500 +0.06%; Nasdaq -0.11%, DAX +0.22%, FTSE +0.06%