Asia Day Ahead: Nikkei extended push to new multi-year high, AUD/USD flirts with trendline support

Market Recap

It was a mixed session on Wall Street overnight (DJIA -0.42%; S&P 500 -0.15%; Nasdaq +0.09%), but the quick paring of earlier losses across major US indices suggests that buyers were not ready to back down just yet. The S&P 500 VIX continues to edge lower for the third straight day, reflecting that appetite for risk-taking stays intact, with the index potentially eyeing for another retest of its 2023 low.

The US dollar managed to find its way slightly higher (+0.35%), but continues to trade within a tight range over the past week. Market participants may look for any break of the boundaries of last Friday’s candle to dictate greater control from either buyers or sellers. Oil prices were higher as well, but with the aggressive sell-off on Monday, a move above the US$79.00 level may be needed to provide some conviction for buyers. On the other hand, gold prices continue to struggle, which leaves its US$2,018 level on watch for any retest.

For now, given the quiet economic calendar ahead, sentiments may remain in its reserved state, with all eyes on the US inflation data release tomorrow to provide cues for market direction. Nevertheless, the Nasdaq 100 index manages to find some support off the 16,300 level lately, where a 23.6% Fibonacci retracement stands from its October low to December 2023 peak. For now, buyers have defended the key 50 level on its daily relative strength index (RSI) to keep the near-term upward bias intact. Ahead, the 16,300 level will remain as a key support to hold, while the bulls may set their eyes on the key 17,000 level for a retest.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +1.32%, ASX -0.19% and KOSPI -0.48% at the time of writing. The Nikkei 225 index has pulled ahead from the rest to hit its 33-year high, aided by strength in tech, alongside some recovery in risk sentiments from the initial New Year jitters. Some pushback against hawkish Bank of Japan (BoJ) expectations may also be at play, which are supportive of equities.

Economic data this morning revealed Japan’s average cash earnings coming in way below expectations (0.2% year-on-year versus 1.5% consensus) for November, which is its slowest growth since February 2022. Along with the downside surprise in household spending yesterday, the data may likely offer room for Japanese policymakers to exercise more patience in their policy-pivot decision, with market rate-hike bets for 2Q 2024 being pared.

Eyes were also on November inflation data out of Australia, which saw monthly consumer price index (CPI) coming in slightly below estimates (4.3% versus 4.4% forecast) and turn in its slowest price growth since January 2022. Promising inflation progress may validate market expectations that the Reserve Bank of Australia (RBA) is done with rate hikes, but may only eye rate cuts in the second half of this year, given that there is still some gap to cover until the central bank’s 2-3% target.

The AUD/USD managed to edge slightly higher following the inflation data, but continues to flirt with an upward trendline support. Failure to reclaim the trendline over the coming days could suggest some near-term downward bias, which may see a deeper retracement to the 0.656 level. This level is where its 200-day moving average (MA) stands alongside its Ichimoku cloud support on the daily chart. Its daily RSI is also back to its key 50 level, where buyers may have some defending to do.

On the watchlist: Nikkei 225 hit new high since March 1990

Renewed gains in chipmakers have powered the Nikkei 225 index to a new high since March 1990, with the index overcoming its 34,000 level of resistance, after having been stuck in a broad range since June 2023. The push to a new higher high leaves the upward trend intact, as its RSI defended the key 50 level on the daily chart. The 34,000 level may serve as a resistance-turned-support to hold, while buyers may set its sight on the 35,200 level next.

Tuesday: DJIA -0.42%; S&P 500 -0.15%; Nasdaq +0.09%, DAX -0.17%, FTSE -0.13%