IC Markets Asia Fundamental Forecast | 28 September 2023
What happened in the US session?
Federal Reserve Bank of Minneapolis President Neel Kashkari’s interview with CNBC overnight had him stating that “it is not clear yet whether the central bank is finished raising rates amid ample evidence of ongoing economic strength”. He also mentioned that he does not think that rates have been hiked sufficiently enough to bring inflation down to the 2% target and expects rates to remain steady in 2024 as well. He was once again very hawkish which caused the dollar index (DXY) to rise as high as 106.85 overnight.
What does it mean for the Asia Session?
The DXY could pull back during the Asia session but is likely to remain above the 106-level. Meanwhile, Australian retail sales eked out small gains over the last couple of months and the forecast for September points to another slight increase of 0.3% MoM. The monthly slowdown in sales highlights the restraint in consumer spending as interest rates remain elevated. The Aussie dollar tumbled as low as 0.6330 overnight but was rebounding strongly as Asian markets came online.
The Dollar Index (DXY)
Key news events today
GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The final GDP reading for the second quarter of 2023 is likely to show the US economy growing 2.2% QoQ, which is slightly higher than the previous estimate of 2.1%.
Not only have unemployment claims been trending lower over the past five weeks, they also have printed lower than their respective forecasts. Another round of lower-than-expected claims combined with a strong GDP figure is likely to function as another bullish catalyst for the DXY. This index hit 106.85 overnight and is once again likely to remain 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
GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The final GDP reading for the second quarter of 2023 is likely to show the US economy growing 2.2% QoQ, which is slightly higher than the previous estimate of 2.1%.
Not only have unemployment claims been trending lower over the past five weeks, they also have printed lower than their respective forecasts. Another round of lower-than-expected claims combined with a strong GDP figure is likely to function as another bullish catalyst for the DXY which in turn drives gold lower. This precious metal dropped as low as $1,870/oz overnight and overheard pressures remain.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Retail Sales (1:30 am GMT)
What can we expect from AUD today?
Australian retail sales eked out small gains over the last couple of months and the forecast for September points to another slight increase of 0.3% MoM. The monthly slowdown in sales highlights the restraint in consumer spending as interest rates remain elevated. The Aussie dollar tumbled as low as 0.6330 overnight but was rebounding strongly as Asian markets came online.
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
ANZ Business Outlook (12:00 am GMT)
What can we expect from NZD today?
The ANZ Business Outlook survey showed confidence rising 6 points to hit +2, entering positive territory for the first time since early 2021 while inflation expectations fell slightly to drop below 5%. The Kiwi dived as low as 0.5900 overnight but was rising strongly buoyed by the improved confidence as Asian markets came online.
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 Bearish
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI (11:30 pm GMT)
What can we expect from JPY today?
The Tokyo core CPI trended lower over the last couple of months from 3.2% YoY in June to 2.8% in August. The estimate for September points to another month of easing as this index is expected to come in at 2.6% YoY. Further moderation of inflation in Japan will give further impetus to the Bank of Japan (BoJ) to maintain its ultra-dovish monetary policy. USD/JPY touched 149.70 before pulling to 149.50 overnight. This currency pair continues to slide lower but should remain above the 149-level.
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
German CPI (Tentative)
What can we expect from EUR today?
The preliminary CPI for Germany for the month of September is expected to increase at the same pace as the previous month, rising 0.3%. The annualised reading eased to 6.1% YoY in August but remains historically high. The Euro remains under heavy selling pressure as it broke below 1.0500 overnight. As Asian markets came online, the Euro retraced higher towards 1.0515 before reversing to retest yesterday’s low.
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 0.9200 overnight but started to pull back this morning. However, this currency pair is likely to remain elevated today once again.
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 tumbled as low as 1.2110 overnight. It retraced slightly higher this morning before reversing to resume the downturn – GBP/USD 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 gains in crude prices drove USD/CAD under 1.3500 overnight. This currency pair dropped as low as 1.3482 as Asian markets came online but then proceeded to retrace higher towards 1.3500. With crude prices remaining elevated, USD/CAD could resume the downturn as the day progresses.
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
No major news events.
What can we expect from Oil today?
EIA crude oil inventories fell by 2.2M which was higher than the expected drawdown of 1.3M barrels of oil. Along with the ongoing tighter supplies, this larger draw boosted crude prices with WTI oil breaking above the $93-mark. Crude prices are expected to remain elevated and could climb above $94 per barrel this week.
Next 24 Hours Bias
Medium Bullish
