IC Markets Europe Fundamental Forecast | 5 April 2023
What happened in the Asia session?
The RBNZ surprised the market with a 50-bps hike vs the 25-bps increase expected. The OCR now stands at 5.25%. The Rate Statement highlighted that the recent severe weather events in the North Island have led to higher prices for some goods and services, increasing the risk of inflation expectations persisting above the target range.
What does it mean for the Europe & US Sessions?
The RBNZ has demonstrated the will of central banks to bring inflation down towards the 2% target area. This surprise hike will likely motivate the NZD/USD pair to the round figure at 0.6400. A bearish confirmation from the upcoming US ADP Non-Farm Employment Change for the dismal JOLTS Job Openings would reinforce the anticipated NZD strength against the USD.
The Dollar Index (DXY)
Key news events today
ADP Non-Farm Employment Change
ISM Services PMI
What can we expect from DXY today?
The forecasted ADP Non-Farm Employment Change of 208K, lower than the previous reading of 242K, suggests a potential weakness in the US job market. However, the ISM Services PMI is forecasted to decrease from 55.1 to 54.3, indicating slowing US service sector growth. This could also hurt the USD.
Central Bank Notes:
- The US banking system is sound and resilient, but recent developments may result in tighter credit conditions for households and businesses.
- The Federal Reserve has raised the target range for the federal funds rate to 4-3/4 to 5 per cent, committed to returning inflation to its 2 per cent objective.
- In determining the extent of future increases in the target range, the Committee will consider various factors, including the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and economic and financial developments.
- Next meeting is on 3 May 2023
Next 24 Hours Bias
Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The decision of the RBA to maintain the cash rate at 3.60% could positively impact the price of gold since the opportunity cost of holding gold decreases in a stable interest rate environment.
Next 24 Hours Bias
Bullish
The Australian Dollar (AUD)
Key news events today
Cash Rate
RBA Gov Lowe Speaks
What can we expect from AUD today?
Any cautious language from RBA Governor Lowe in the upcoming speech could dampen market expectations for future rate hikes and weaken the AUD. The speech’s tone could significantly impact the AUD, as it will set the stage for the central bank’s future monetary policy decisions.
Central Bank Notes:
- Kept the cash rate unchanged at 3.60%
- Full impact of previous interest rate hikes is yet to be felt.
- Inflation in Australia has peaked, and the central forecast is to decline this year, at around 3% in mid-2025.
- Further tightening of monetary policy may be necessary to achieve the 2 – 3% inflation target
- Next meeting on 2 May 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
Official Cash Rate
RBNZ Rate Statement
What can we expect from NZD today?
The RBNZ is expected to increase the OCR by 25 bps, from 4.75% to 5.00%. Any indication of a hawkish stance continuation in the accompanying Rate statement would strengthen the NZD.
Central Bank Notes:
- Monetary Policy Committee increased the OCR from 4.25% to 4.75%
- Higher interest rates are needed to reduce inflation and support employment sustainably
- Severe storms in North Island will increase inflation and disrupt production.
- Next meeting is on 5 April 2023
Next 24 Hours Bias
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The lack of significant news events means the previously released data will likely drive the JPY price direction. Key indicators: 10-y Bond Auction – yield 0.46%, bid-to-cover 3.8 (lower than previous); Monetary Base YoY change – -1.0% (improved from -1.6%).
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 27 April 2023
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
A mixed-to-bullish outcome is expected for the EUR from the release of a second-tier data set. Specifically, if data exceed forecasts, positive impacts could come from German Factory Orders, French Industrial Production, and Spanish/Italian Services PMI.
Central Bank Notes:
- ECB raised interest rates by 50 basis points to ensure the 2% inflation target is met
- Inflation is projected to average 5.3% in 2023, with growth at 1%, and underlying price pressures remain strong
- The bank will continue to monitor market tensions closely and will be data-dependent in its policy rate decisions
- Next meeting on 4 May 2023
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
No major news for CHF today, so the currency’s price will likely depend on the upcoming Unemployment Rate forecasted at 1.9%, unchanged from the previous period.
Central Bank Notes:
- Raised policy rate to 1.5% to counter inflationary pressure and ensure price stability. The SNB may need to raise the policy rate further in the future
- The SNB is providing liquidity assistance to Credit Suisse, and the crisis has been halted
- The new inflation forecast assumes a policy rate of 1.5% and puts average annual inflation at 2.6% for 2023 and 2.0% for 2024 and 2025.
- Mortgage and real estate market vulnerabilities persist
- Next meeting on 11 April 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
UK’s upcoming Final Services PMI is forecasted to remain stable at 52.8, having a limited impact on the currency, while MPC Member Tenreyro’s speech impact is uncertain. The BOE Quarterly Bulletin may have a significant effect as investors watch for potential currency movements based on the BoE’s outlook.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Trade Balance will likely show a decrease from 1.9B to 1.5B. This suggests that Canada is importing more goods than it is exporting, which could negatively impact the value of the CAD.
Central Bank Notes:
- Bank of Canada maintains its target for the overnight rate at 4.5%
- Inflation eased in January, but price increases for food and shelter remain high
- BOC is prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 12 April 2023
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Black gold has maintained its price gains following the surprise cut in production by OPEC+. However, concerns about the lagging impact of recent interest rate hikes are weighing on demand and limiting further price increases. As a result, the upside potential for oil prices may be capped in the near term.
Next 24 Hours Bias
Mixed
