The ifs and buts of currency and commodity outlook for 2024

Now that India has positioned itself in the JP Morgan bond index it is likely to attract flows to the tune of over $25billion. On the global front, the Fed is near its peak for the tightening cycle and dot plot suggest that the Fed could even cut rates thrice in 2024. The Fed has been quite vocal in highlighting that the ‘Data-Dependent’ will be the approach going ahead

There surely are many factors to look at when we talk about the next year as along with monetary policy changes, fluctuations in the dollar index and economic data points could provide triggers in the market. Even after such aggressive rate hikes, market participants will keep an eye on inflationary concerns and Fed’s move accordingly. We have already seen the impact of rate cuts kicking in gold and silver prices. However, if data and inflation suggests otherwise and Fed does not ease the stance as per market expectations then that could cap gains for safe haven assets.

The risk premium on the back of geo-political tensions, lower dollar index, higher rate cut expectations, slower growth fears, inflows in ETF, central bank gold bank spree, development in China and green technology and possible rupee deprecation could keep the floor strong, said Motilal Oswal Financial Services.

Currency outlook:As far as the rupee goes for 2024, on the domestic front, the momentum will be driven by centre elections and flows that will be attracted in the equity and debt segment.

Now that India has positioned itself in the JP Morgan bond index it is likely to attract flows to the tune of over $25billion. On the global front, the Fed is near its peak for the tightening cycle and dot plot suggest that the Fed could even cut rates thrice in 2024. The Fed has been quite vocal in highlighting that the ‘Data-Dependent’ will be the approach going ahead.

In 2024, the US is preparing for its Presidential elections that is scheduled at the end of the year and is going to be one of the key events that will set the tone for 2025. As far as the dollar index is concerned, we expect the momentum to be marginally negative considering that the Fed will remain dovish in their outlook and that would be triggered by softening economy. Active intervention by the RBI could keep the volatility in check for the rupee and we expect it to trade in the range of 81 and 85.

Precious metal outlook:Gold-posted gains of ~13-15% YTD, silver too has gained by more than 8% YTD on the back of, geo-political tensions, central banks action, whipsaws in dollar index and US yields and few others, which triggered a move in market. Central banks were active this year about interest rate hikes with an objective to ease the inflation down. Along with central banks action, we witnessed a black swan event this year as well raising the risk premium for safe haven assets. Let’s take a glance of how the previous year was and what factors could influence prices in the 2024.

Base metal outlook: Commodities had a very positive start to 2023, which was a good follow up from what we have seen in 2021 and 2022. However the end was not as expected with the complex down for the year. China’s reopening story has not gone as planned, with a number of weak spots in the economy, particularly the property sector.

Meanwhile, central bank tightening and a stronger US dollar have provided strong headwinds to commodity markets.

The outlook for metals largely hinges on China, and the off-take in certain pockets looks quite promising suggesting a revival in metals demand. In addition, LME base metal inventories have edged higher in recent months from multi year lows, easing concerns over tight markets in the short term, although on a historical basis, exchange inventories are still tight.

For 2024, most base metal markets are expected to keep swinging between a smaller surplus and deficit quite easily, depending on how demand plays out. Longer term fundamentals for most metals and historically tight inventories suggest that there could be some positive upside, despite largely balanced markets.

LME metal prices have been quite volatile with a positive start to the year, followed by a fall for much of the year, ending with flatter returns. Global monetary tightening and Chinese underperformance have weighed on developed economies.

However, supportive fundamentals, lingering geopolitical risks and expectations of Federal Reserve easing suggest the metal basket will trend higher next year. Medium term trend looks promising as demand from green industries will continue to grow.