IC Markets Asia Fundamental Forecast | 20 September 2023
What happened in the US session?
Canada’s inflation accelerated in August as both the headline CPI and core CPI readings increased over the previous month and were also higher than the respective estimates. Headline CPI increased from 3.3% YoY in July to 4.0% YoY while core CPI rose from 3.2% YoY to 3.3% YoY. Hotter than expected inflation data caused the Canadian dollar to strengthen significantly overnight with USD/CAD falling as low as 1.3378.
Meanwhile, 1.54M building permits were registered in August which was higher than the forecast of 1.44M while 1.28M housing starts were registered versus the estimate of 1.44M – data for the residential construction sector was mixed. The dollar index (DXY) jumped from a low of 104.80 to 105.17 following this news release.
What does it mean for the Asia Session?
The DXY started to drift lower towards the 105-level at the start of Asian trading hours. Price action could be subdued for most parts of today as markets await the highly anticipated FOMC meeting coming up in the latter part of the US session.
The Dollar Index (DXY)
Key news events today
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from DXY today?
The Federal Reserve is widely expected to keep the Fed Funds Rate on hold at 5.50% at September’s FOMC meeting. Despite this expected ‘pause’ in rate hikes, the DXY has made strong gains recently. The press conference will also be closely watched as Chairman Jerome Powell could still jawbone the US dollar higher with any hawkish outlook or remarks regarding monetary policy.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting runs from 19 to 20 September 2023.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from Gold today?
The Federal Reserve is widely expected to keep the Fed Funds Rate on hold at 5.50% at September’s FOMC meeting. Despite this expected ‘pause’ in rate hikes, the DXY has made strong gains recently. The press conference will also be closely watched as Chairman Jerome Powell could still jawbone the US dollar higher with any hawkish outlook or remarks regarding monetary policy. Thus, gold prices could come under pressure during the US session.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie climbed as high as 0.6470 overnight before pulling back at the start of the Asia session and was falling towards 0.6450. It continues to range between 0.6400 and 0.6470.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 3 October 2023.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
GDP (10:45 pm GMT)
What can we expect from NZD today?
New Zealand’s economy fell into a technical recession in the first quarter of 2023 as last year’s Q4 GDP reading was revised down to show a contraction of 0.7% YoY while the figure for Q1-23 pointed to a decline of 0.1% YoY. The forecast for the second quarter of 2023 indicates a small growth of 0.4% YoY – a stronger than expected reading could provide some lift for the Kiwi.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With demand for the US dollar remaining strong, USD/JPY was pushing higher this morning to rise towards 147.90 and could remain elevated going into the FOMC meeting later today.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields around +0.5%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
German PPI (6:00 am GMT)
What can we expect from EUR today?
The Producer Price Index (PPI), which measures wholesale inflation, declined by 6% YoY for the first time in 30 months in Germany as energy and electricity prices tumbled. With Germany’s manufacturing PMI data contracting since mid-2022, inflation for this sector could continue to moderate lower and potentially drive the Euro down.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting is on 26 October 2023.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Switzerland’s trade balance widened to CHF3.2B in August 2023 from CHF2.6B in the previous month as exports rose but this surplus could not provide any significant gains for the Swiss franc as USD/CHF climbed as a high as 0.8984 overnight and could remain elevated going into the FOMC meeting later today.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions. The GDP is projected to grow around 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
CPI (6:00 am GMT)
PPI (6:00 am GMT)
What can we expect from GBP today?
Consumer inflation in the UK remains stubbornly high with the core CPI remaining unchanged at 6.9% YoY while the headline CPI edged marginally lower to 6.8% YoY in July. If UK inflation remains elevated in August, the Bank of England may continue to raise its official cash rate at this week’s monetary policy meeting which could provide some support for the Pound.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons, respectively.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
BoC Summary of Deliberations (5:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada will release a detailed record of the Governing Council’s most recent meeting, providing an in-depth insight into the economic conditions that influenced their decision to hold the overnight rate steady at 5.00% on 6th September. Any potential hawkish statements could cause USD/CAD to resume its downturn, especially after yesterday’s hotter than expected Canadian inflation data.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
API stockpiles resumed the drawdown as 5.3M barrels were removed from storage which was higher than the estimate of a 2.7M drawdown, signalling a stronger-than-expected demand in the US. EIA inventories are also expecting a drawdown of 1.3M barrels and another stronger than expected reading could provide another boost for crude oil. WTI oil pulled back quite sharply overnight to fall under the $90-mark but prices could resume the uptrend as supply remains tight.
Next 24 Hours Bias
Weak Bullish
