IC Markets Asia Fundamental Forecast | 21 September 2023
What happened in the US session?
As widely expected, the Federal Reserve held the Fed Funds rate steady at 5.50% at September’s FOMC meeting but Chairman Jerome Powell’s hawkish press conference spooked markets. The Federal Reserve signaled that rates are likely to stay higher for longer, holding monetary policy at a restrictive level until they are “confident that inflation is moving down sustainably”. In addition, forecasts now show 12 out of 19 FOMC officials are of the opinion that there is still one more 25-bps hike to take place in the last quarter of this year. The dollar index (DXY) jumped from a low of 104.70 to 105.45 in the aftermath of the statement release and press conference.
What does it mean for the Asia Session?
The DXY hit 105.63 this morning and started to pull back slightly at the start of Asian trading hours. As Asia markets digest the latest bazooka from Federal Reserve Chairman Jerome Powell. Demand for the greenback is likely to remain strong and keep DXY elevated.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Unemployment claims in the US have printed lower than the forecast over the past four weeks which signal a resilient labour market despite higher interest rates. Should claims print lower than the forecast again, demand for the US dollar should pick up once more following yesterday’s hawkish rhetoric from Federal Reserve Chairman Jerome Powell during his FOMC press conference.
Central Bank Notes:
- The Federal Funds Rate target range remained at 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 31 October to 1 November 2023.
Next 24 Hours Bias
Strong Bullish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Unemployment claims in the US have printed lower than the forecast over the past four weeks which signal a resilient labour market despite higher interest rates. Should claims print lower than the forecast again, demand for the US dollar should pick up once more following yesterday’s hawkish rhetoric from Federal Reserve Chairman Jerome Powell during his FOMC press conference and thus add further downward pressure on gold.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Flash Composite PMI (11:00 pm GMT)
What can we expect from AUD today?
The Composite PMI reading in Australia has contracted over the past two months as services activity again fell at a faster pace than manufacturing output along with new orders. Combined with a hawkish Federal Reserve following yesterday’s FOMC meeting, the Aussie could remain under heavy pressure today.
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 is on 3 October 2023.
Next 24 Hours Bias
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Despite New Zealand’s economy growing 0.9% in the second quarter, which was higher than the forecast of 0.4%, the Kiwi dived sharply overnight as a hawkish Federal Reserve reignited demand for the US dollar. Further downward pressures are expected to build for the Kiwi today.
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
Strong Bearish
The Japanese Yen (JPY)
Key news events today
National Core CPI (11:30 pm GMT)
What can we expect from JPY today?
Core CPI in Japan slowed from 3.3% in June to 3.1% YoY in July. Although still higher than the 2% target, inflation in Japan is relatively tame as compared to other developed economies. Continued fall in CPI readings would allow the Bank of Japan to maintain its ultra-dovish monetary policy stance. Combined with a hawkish Federal Reserve following yesterday’s FOMC meeting, USD/JPY surged as high as 148.35 overnight and is expected to remain elevated 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
Medium Bullish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (2:00 pm GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to speak at the Mediterranean meetings in Marseille where her comments and remarks could add further volatility for the Euro. Following yesterday’s hawkish FOMC statement release and press conference, the Euro tumbled hard to slide down towards 1.0600 this morning.
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
Strong Bearish
The Swiss Franc (CHF)
Key news events today
SNB Monetary Policy Assessment (7:30 am GMT)
SNB Press Conference (Tentative)
What can we expect from CHF today?
The Swiss National Bank (SNB) will release the outcome of their monetary policy assessment where they are widely expected to increase interest rates from 1.75% to 2.00%. With inflation projections for 2024 raised due to elevated electricity prices and increased rents, the SNB could be the second hawkish central bank this week. Combined with a hawkish Federal Reserve following yesterday’s FOMC meeting, higher volatility for USD/CHF can most definitely be expected 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 is on 21 September 2023.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
BoE Monetary Policy Summary (11:00 am GMT)
BoE Official Bank Rate Announcement (11:00 am GMT)
What can we expect from GBP today?
The Bank of England (BoE) will be the third major central bank this week to release its monetary policy statement and adjust its official bank rate. With inflation remaining stubbornly high in the UK, the BoE is expected to raise its rates by 25 basis points, bringing it up to 5.50%. Following yesterday’s hawkish FOMC statement release and press conference, this latest move could provide some much-needed 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 is on 21 September 2023.
Next 24 Hours Bias
Strong Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following yesterday’s hawkish FOMC statement release and press conference, demand for the greenback surged causing USD/CAD to jumbo as high as 1.3500 overnight. This currency pair is expected to remain elevated today.
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 meeting is on 25 October 2023.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Following the larger than expected drawdown in API stockpiles, EIA crude oil inventories also fell more than originally anticipated as 2.1M barrels were drawn compared to the estimate of a 1.3M-drawdown. Despite US inventory levels falling more than expected, crude prices continued to pull back sharply overnight as a hawkish Federal Reserve could restrict global economic activity by keeping rates higher for longer. WTI oil fell under the $89-level and could remain under pressure today.
Next 24 Hours Bias
Medium Bearish
