IC Markets Asia Fundamental Forecast | 11 October 2023
What happened in the US session?
Federal Reserve Governor Christopher Waller reiterated the Federal Reserve’s resolve to bring inflation down to its 2% target but did not comment on the economic outlook or the course for monetary policy for the US. Meanwhile, Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Bank of Minneapolis President Neel Kashkari both noted that the Fed may not need to raise interest rates any further as higher Treasury yields could have the desired impact on markets instead of raising rates directly. Their remarks caused the dollar index (DXY) to slide as low as 105.65 by the end of the US session.
What does it mean for the Asia Session?
Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent is due to speak at the Bloomberg Address in Sydney where audience questions are expected. Any neutral or dovish remarks are likely to weigh on the Aussie. The Aussie was trading around 0.6430 prior to his speech.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
FOMC Meeting Minutes (6:00 pm GMT)
What can we expect from DXY today?
The Producer Price Index (PPI), which measures wholesale inflation, increased by 0.7% in August – the highest level since June 2022 – and exceeded market expectations of a 0.4% rise due to a 10.5% surge in energy costs. September’s forecasts for headline PPI and core PPI point to an increase of 0.3% and 0.2% respectively MoM. ‘Softer’ PPI readings could function as a bearish catalyst for the US dollar.
In addition, the minutes from September’s FOMC meeting will be released where we will get further insights into the decision-making process and monetary policy outlook by Federal Reserve Chairman Jerome Powell and his fellow committee members. Although the Fed kept interest rates on hold in September, their statement and press conference were both hawkish. Should the minutes sing a similar tune, they could function as a potential bullish catalyst for the US dollar.
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
Weak Bullish
Gold (XAU)
Key news events today
PPI (12:30 pm GMT)
FOMC Meeting Minutes (6:00 pm GMT)
What can we expect from Gold today?
The Producer Price Index (PPI), which measures wholesale inflation, increased by 0.7% in August – the highest level since June 2022 – and exceeded market expectations of a 0.4% rise due to a 10.5% surge in energy costs. September’s forecasts for headline PPI and core PPI point to an increase of 0.3% and 0.2% respectively MoM. ‘Softer’ PPI readings could function as a bearish catalyst for the US dollar and in turn could lift gold prices.
In addition, the minutes from September’s FOMC meeting will be released where we will get further insights into the decision-making process and monetary policy outlook by Federal Reserve Chairman Jerome Powell and his fellow committee members. Although the Fed kept interest rates on hold in September, their statement and press conference were both hawkish. Should the minutes sing a similar tune, they could function as a bullish catalyst for the US dollar and potentially drive this precious metal lower.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Assist Gov Kent Speaks (12:30 am GMT)
What can we expect from AUD today?
Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent is due to speak at the Bloomberg Address in Sydney where audience questions are expected. Any neutral or dovish remarks are likely to weigh on the Aussie. The Aussie was trading around 0.6430 prior to his speech.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the fourth consecutive meeting.
- Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.
- Some further tightening of monetary policy may be necessary.
- Next meeting is on 7 November 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 is one of the worst performing currencies this morning after running into a major resistance level overnight. It failed to break above 0.6055 and was retreating away from this level to slide lower towards 0.6030 this morning.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee agreed that the OCR needs to stay at a restrictive level to ensure that annual consumer price inflation returns to the 1 to 3% target range and to support maximum sustainable employment.
- While supply constraints in the economy continue to ease, inflation remains too high.
- Spending needs to remain subdued to better match the economy’s ability to supply goods and services, so that consumer price inflation returns to its target range.
- Next meeting is on 29 November 2023.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Overnight remarks by top Federal Reserve officials caused USD/JPY to fall as low as 148.15 overnight. This currency pair found support around 148.40 and climbed above 148.60 as Asian markets came online and it could continue to edge higher for the rest of the day.
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
Germany CPI (6:00 am GMT)
What can we expect from EUR today?
The preliminary CPI estimate for September showed German consumer inflation dropping to 4.5% YoY, a significant decline from the previous month’s reading of 6.1% and slightly below the market expectations of 4.6%. The final estimate points to an unchanged figure from the estimate and could function as a potential bearish catalyst for the Euro 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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Overnight remarks by top Federal Reserve officials caused USD/CHF to drop as low as 0.9040 but this currency pair found support around this level this morning. After pulling back quite sharply since the 3rd of October, USD/CHF could experience a small relief bounce to retrace higher 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
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound briefly rose above the 1.2300-threshold overnight, buoyed by overnight remarks by top Federal Reserve officials. However, it has run into resistance around this key threshold and could pull back further 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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The combination of higher crude oil prices and overnight remarks by top Federal Reserve officials drove USD/CAD as low as 1.3570 overnight. However, this currency pair found support around this level to move higher towards 1.3600 as Asian markets came online. Following the sharp pullback since the 5th of October, a relief bounce for USD/CAD could play out 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
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Crude oil prices remained relatively unchanged overnight as supply concerns in the Middle East began to subside. WTI oil traded around the $84.50 per barrel mark during the US session and is now edging higher this morning. API crude oil stocks are due to be released towards the end of the US session where another larger than expected draw in inventory levels could provide an additional boost for crude oil.
Next 24 Hours Bias
Weak Bullish
