IC Markets Asia Fundamental Forecast | 27 September 2023
What happened in the US session?
The Conference Board Consumer Confidence declined for the second month in a row as consumers expressed concerns about the political situation and higher interest rates in addition to rising prices for groceries and gasoline in particular in the US.
Meanwhile, Federal Reserve Governor Michelle Bowman delivered her pre-recorded opening remarks at a FedCommunities event. Although she did not address the Fed’s monetary policy actions directly, she did state that “increased cost burdens on renters – as inflation outpaced wage growth – underscores the importance of the central bank’s actions”. The dollar index (DXY) rose as high as 106.25 overnight.
What does it mean for the Asia Session?
The DXY climbed strongly this morning to touch 106.30 – a level last seen in November of 2022 – and is expected to remain elevated but pullback can be expected along the way.
Australia monthly CPI is expected to increase for the first time in four months, rising to 5.2% YoY in August. Should the actual reading come in ‘hotter’ than the estimate, it could act as a potential bullish catalyst for the Aussie dollar in the near term – AUD/USD was trading around 0.6380 as Asian markets came online.
The Dollar Index (DXY)
Key news events today
Durable Goods Orders (12:30 pm GMT)
What can we expect from DXY today?
Following four consecutive months of increases, orders for durable goods plummeted by 5.2% in July which was higher than expectations. This was the sharpest decrease in durable goods orders since April 2020, driven by a significant drop in demand for transport equipment. The forecast for August points to another month of decline, albeit a shallow drop of 0.5%
Although the Federal Reserve did not increase the Fed Funds rate last week, Fed officials are jawboning stronger demand for the US dollar with their hawkish statements at various events recently, keeping the DXY elevated.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged 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
Medium Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from DXY today?
Although the Federal Reserve did not increase the Fed Funds rate last week, Fed officials are jawboning stronger demand for the US dollar with their hawkish statements at various events recently, keeping the DXY elevated which in turn adds further downward pressure on gold prices. This precious metal dipped under the key $1,900/oz level overnight – a threshold that will be closely monitored by many traders today.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Monthly CPI (1:30 am GMT)
What can we expect from AUD today?
The monthly CPI in Australia has been trending lower since the start of the year as inflationary pressures faded. However, after slowing to 4.9% YoY in July, the forecast for August points to an increase of 5.2%. A hotter than expected reading could function as a short-term bullish catalyst for the Aussie dollar. \
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi has ranged approximately between 0.5940 and 0.5970 since Monday and could continue to trade sideways within this range 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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Bank of Japan’s (BoJ) monetary policy meeting minutes released overnight showed that the board members agreed to keep policy rates at -0.1% to sustainably hit their 2% inflation price target but were divided on how soon the BoJ should time their exit from negative interest rates. Overall, there were no surprises from the latest minutes and this is likely to keep the Japanese yen depressed. USD/JPY briefly broke above 149.00 yesterday and could make another attempt to climb above this level this week.
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% and -0.5% from the target level.
- Inflation expectations have shown some upward movements against medium- to long-term inflation expectations and wage growth rise, accompanied by changes in factors such as firms’ wage- and price-setting behaviour.
- Japan’s economy is likely to continue recovering moderately for the time being.
- Next meeting is on 31 October 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?
The Euro remains under heavy selling pressure as it hit a low of 1.0560 overnight. As Asian markets came online, the Euro hit a low of 1.0555 before retracing slightly higher but it is likely to retest this level today.
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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
With demand for the US dollar remaining strong, USD/CHF broke above 0.9150 overnight and is making a race towards 0.9180 this morning. This currency pair is likely to remain elevated today.
Central Bank Notes:
- The SNB unexpectedly kept the policy rate unchanged at 1.75% in September.
- Inflation forecasts remain unchanged at 2.2% for both 2023 and 2024 while it was lowered from 2.1% to 1.9% for 2025.
- 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 projection for GDP growth this year remained unchanged at 1.0%.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
With demand for the US dollar remaining strong, the Pound broke below 1.2200 with conviction overnight. It hit a low of 1.2140 this morning and is likely to retest this level again as the day progresses.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to maintain its Official Bank Rate at 5.25%.
- Four members preferred to increase the Bank Rate by 0.25 percentage points, to 5.5%.
- CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term.
- The mean projection for CPI inflation remained unchanged and is expected to decline to 2.0% and 1.9% at the two and three-year horizons, respectively.
- Next meeting is on 2 November 2023.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Strong demand for the US dollar pushed USD/CAD as high as 1.3530 yesterday where this currency pair ran into some near-term resistance. With crude oil prices strengthening overnight, further pullbacks in USD/CAD can be expected 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
Weak Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Despite API stockpiles adding 1.6m barrels of crude versus the expected drawdown of 1.7M, WTI oil managed to remain above $89.50 per barrel overnight and did not stop prices from rising above $90.50 as tighter crude oil supply keeps the commodity elevated once more.
Next 24 Hours Bias
Medium Bullish
