Bonda Asia: Fed Rate Cut Expectations Cool, Gold Plunges Below 5000 Level

On March 19th, Thursday, the Bank of Japan maintained its benchmark interest rate at 0.75% for the second consecutive meeting, keeping its policy unchanged. However, one member proposed a rate hike, and the central bank explicitly cited the Middle East conflict and oil price fluctuations as risks to the outlook, indicating that the path toward monetary policy normalization faces new external disruptions. The Bank of Japan stated that it will implement monetary policy appropriately from the perspective of sustainably and stably achieving the 2% inflation target, and will continue to raise the policy rate depending on economic and price developments. This statement continues the previous gradual rate hike guidance and does not signal an early tightening. The decision to hold steady was in line with the expectations of all 51 economists surveyed by Bloomberg. The statement maintains a basic view of a moderate recovery in the Japanese economy, noting that economic growth is expected to continue gradually, inflation expectations have modestly risen, and the mechanism of wages and prices rising in tandem is likely to persist.

Additionally, the Bank of Canada announced that it will keep the overnight benchmark rate at 2.25%, with the bank rate at 2.5% and the deposit rate at 2.20%. The Bank of Canada stated that escalating conflicts in the Middle East have increased volatility in global energy prices and financial markets, raising risks to the global economy. The scope, duration, and economic impact of the conflict are highly uncertain. The decision-making committee believes that current economic activity is weakening, uncertainty is rising, and economic growth faces downside risks; meanwhile, rising energy prices are heightening inflation risks. The bank will continue to assess the impact of U.S. tariffs and trade policies, closely monitor developments in the Middle East conflict and their effects on economic growth and inflation, and take responsive measures as needed to maintain price stability.

Key data to watch today include the UK February unemployment rate, UK January three-month average wage growth including bonuses, U.S. initial jobless claims for the week ending March 14, U.S. March Philadelphia Fed Manufacturing Index, U.S. January seasonally adjusted new home sales annualized total, and U.S. January wholesale inventories monthly final. Additionally, the Bank of England and the European Central Bank will announce interest rate decisions tonight, which warrant close attention.

Gold/USD

Gold fell sharply yesterday, breaking below the 5000 level and hitting a six-week low, with the current price around 4950. The Federal Reserve held steady as expected but signaled a hawkish stance, which, along with the cooling of rate cut expectations, supported the dollar index and pressured gold. Moreover, the overall positive U.S. economic data released during the session also weighed on gold. Focus today is on the resistance around 5000, with support near 4900.

USD/JPY

USD/JPY surged yesterday, hitting a 20-month high, with the current price around 159.70. The main reasons for the rally include the dollar index remaining hawkish and supported by the reduced expectations of Fed rate cuts, as well as the expectation that the Bank of Japan will hold steady this week. In the Asian session, the BOJ’s steady stance caused a slight pullback in USD/JPY, which is now trading around 159.70. Attention today is on resistance near 160.50, with support around 159.00.

USD/CAD

USD/CAD rose yesterday, reaching a three-day high, with the current price around 1.3730. The main driver was the dollar index recovering above 100.00, supported by the diminished expectations of Fed rate cuts. However, rising oil prices and the Bank of Canada’s decision to keep rates steady while signaling a hawkish stance limited the upside. Today, focus is on resistance near 1.3800, with support around 1.3650.