IC Markets Europe Fundamental Forecast | 2 May 2023
What happened in the Asia session?
The RBA surprised markets with a rate hike of 25bps to 3.85% in May, citing concerns over high inflation and a tight labour market. The rate rise is expected to help anchor inflation expectations, but the RBA has indicated that further policy tightening may be required depending on how the economy and CPI evolve.
What does it mean for the Europe & US Sessions?
The Australian dollar could rise to 0.6775 on the RBA surprise. Conversely, Gold prices could fall towards $1,950 due to the higher opportunity cost of holding non-yielding assets as investors shifted their focus towards higher-yielding assets in response to rising interest rates. The Fed and the ECB are expected to raise rates by 25bps this week, respectively.
The Dollar Index (DXY)
Key news events today
JOLTS Job Openings
What can we expect from DXY today?
The forecasted data for the JOLTS Job Openings report suggests a slight decrease from 9.93 million to 9.74 million job openings, potentially impacting the US dollar negatively as it may be perceived as a sign of economic weakness.
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
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The Australian Cash Rate is expected to remain at 3.60% after today’s RBA meeting. However, a higher rate can decrease demand for gold as investors seek higher returns elsewhere, while a lower rate can increase demand for gold as a safe-haven asset.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
Cash Rate
RBA Rate Statement
RBA Gov Lowe Speaks
What can we expect from AUD today?
A deviation in the Cash Rate from the forecasted 3.60% will impact the AUD, with higher interest rates potentially attracting foreign investment and increasing demand for the currency. In comparison, lower rates may lead to a decrease in demand. The RBA Rate Statement provides insights into the central bank’s decision-making process and economic outlook, which can also impact the. Any speeches or comments from RBA Governor Lowe will be closely monitored for insights into the central bank’s policy direction and potential changes to interest rates.
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
No major news events.
What can we expect from NZD today?
No significant news affecting the NZD is expected for today. The direction of its price movement is likely influenced by the upcoming data releases, particularly the Employment Change q/q and the Unemployment Rate. The Employment Change q/q is forecasted to increase by 0.5%, higher than the previous quarter’s growth rate of 0.2%. The Unemployment Rate is expected to remain stable at 3.5%, the same as the last quarter’s rate of 3.4%.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 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 upcoming release of the Monetary Base y/y data for Japan is expected to show a decline of 1.3%, which is a larger decline than the previous data of -1.0%. A decrease in the data suggests that the amount of currency in circulation has decreased, potentially reducing the money supply in the economy. This could result in a stronger yen due to an increase in demand.
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 higher CPI Flash Estimate (forecast 7.0%, last 6.9%) suggests that inflation has increased in the Eurozone, which could cause an increase in the EUR as the ECB may be seen to raise rates further. Conversely, a lower Core CPI Flash Estimate (forecast 5.6%, last 5.7%) may negatively impact the shared currency.
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
Mixed
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The SECO Consumer Climate is forecasted to be -22, an improvement from the previous reading of -30. In contrast, the Manufacturing PMI is predicted to be 47.2, which indicates a modest expansion of the prior reading of 47.0. These improvements are expected to back the demand for the Swiss Franc.
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 22 June 2023
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The upcoming data releases for the GBP currency indicate a mixed impact. The Nationwide HPI m/m is expected to decrease by 0.5%, a better forecast than the previous month’s decrease of 0.8%. However, the Final Manufacturing PMI forecasted and prior data stand at 46.6, indicating a stagnant manufacturing sector.
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?
No major news event is expected to impact the CAD price direction today. As a result, traders and investors will likely rely on previously released Manufacturing PMI. While the actual value matches the forecasted value, the increase from the previous value suggests some improvement in the manufacturing sector’s health.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
China’s manufacturing activity fell unexpectedly in April, which may lead to a decline in oil demand and put downward pressure on prices. The country is one of the largest consumers of oil worldwide. On the supply front, OPEC+ output cuts of around 1.16 million bpd took effect on Monday.
Next 24 Hours Bias
Mixed
