IC Markets Asia Fundamental Forecast | 13 October 2023
What happened in the US session?
The Consumer Price Index (CPI) remained unchanged at 3.7% YoY in September but the reading was higher than the market forecast of 3.6%. Similarly, CPI increased at a higher-than-expected rate on a monthly basis, growing 0.4% versus the estimate of 0.3%.
Meanwhile, unemployment claims edged higher for the third week in a row but the figure of 209k was lower than the forecast of 211k – lower claims signal a more resilient labour market. As a whole, the overnight data from the US functioned as a strong bullish catalyst for the US dollar which caused the dollar index (DXY) to surge as high as 106.60.
What does it mean for the Asia Session?
As Asian markets digest the hotter than expected inflation data out of the US, the DXY retreated away from the overnight high to fall under 106.50. It could continue to pull back further during the Asia session but potentially resume the upturn in the latter part of the day.
The Dollar Index (DXY)
Key news events today
FOMC Member Harker Speaks (1:00 pm GMT)
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Philadelphia President Patrick Harker is due to speak about the 2023 economic outlook at the virtual event of Delaware State Chamber of Commerce where audience questions are expected. He could follow a similar tune as the other top Fed officials by signalling a less ‘hawkish’ monetary policy outlook.
The preliminary survey findings from the University of Michigan (UoM) Consumer Sentiment will be released today where inflation expectations could show a moderate increase from the previous month’s reading of 3.2% YoY following the increase in yesterday’s CPI data. Another higher reading for inflation expectations could trigger another round of demand for the greenback.
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 Bearish
Gold (XAU)
Key news events today
FOMC Member Harker Speaks (1:00 pm GMT)
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of Philadelphia President Patrick Harker is due to speak about the 2023 economic outlook at the virtual event of Delaware State Chamber of Commerce where audience questions are expected. He could follow a similar tune as the other top Fed officials by signalling a less ‘hawkish’ monetary policy outlook.
The preliminary survey findings from the University of Michigan (UoM) Consumer Sentiment will be released today where inflation expectations could show a moderate increase from the previous month’s reading of 3.2% YoY following the increase in yesterday’s CPI data. Another higher reading for inflation expectations could trigger another round of demand for the greenback and halt the recent gains for gold.
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 nosedived by as much as 80 pips overnight as ‘hotter’ than expected CPI data in the US weighed heavily on this currency. The Aussie found support around the 0.6300-level and was retracing higher as Asian markets came online. However, the downturn is likely to resume in the latter part of the day as this currency is all but certain to register a third consecutive week of strong losses.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi dived as low as 0.5920 overnight and continues to slide lower as Asian markets came online. ‘Hotter’ than expected CPI data in the US weighed heavily on the Kiwi and it is all but certain to close deeply in the red for this week.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
‘Hotter’ than expected CPI data overnight caused USD/JPY to surge towards 149.80. Combined with the Bank of Japan’s (BoJ) ongoing ultra-dovish monetary policy, this currency pair remains elevated and could end the trading week by closing above the key 150.00-threshold by the end of 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% 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
Industrial Production (9:00 am GMT)
ECB President Lagarde Speaks (1:00 pm GMT)
What can we expect from EUR today?
Industrial production in the Eurozone fell by 1.1% MoM in July, marking the first monthly decline following three consecutive months of expansion. This reading was also weaker than the forecast of a 0.7% decrease. The estimate for August points to a modest growth of 0.1% MoM – weaker production is likely to weigh on the Euro. Meanwhile, ECB President Christine Lagarde will be participating in a panel discussion titled “IMF Seminar: Debate on the Global Economy” at the World Bank Group and the International Monetary Fund Annual Meeting in Morocco where her comments could also impact the direction of the Euro.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following the hotter than expected inflation data out of the US, USD/CHF surged from 0.9000 to touch 0.9090 overnight. This currency pair then began to retreat from this high and slide lower towards 0.9060 as Asian markets came online. Further pull backs could be expected USD/CHF before it potentially resumes the upturn in the latter part of the day.
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 Bearish
The Pound (GBP)
Key news events today
BOE Gov Bailey Speaks (8:00 am GMT)
What can we expect from GBP today?
Bank of England (BoE) Governor Andrew Bailer is due to speak at the Institute of International Finance Annual Membership Meeting in Morocco. The topic for his speech is “In conversation: Policymaker” so it is quite likely he will comment on the BoE’s outlook on monetary policy and the economic conditions of the UK. His remarks could impact the Pound during the European session.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following the hotter than expected inflation data out of the US, USD/CAD surged from 1.3600 to briefly break above 1.3700 overnight. This currency pair then began to retreat from this high and slide lower towards 1.3670 as Asian markets came online. Further pull backs could be expected USD/CAD before it potentially resumes the upturn in the latter part of the day.
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 Bullish
Oil
Key news events today
EIA Crude Oil Inventories (3:00 pm GMT)
What can we expect from Oil today?
Following the surprise larger-than-expected API stockpiles, the EIA also experienced a massive increase in inventory levels. Instead of a forecasted drawdown of 400k, 10.2M barrels of crude were instead added to inventories which indicate weaker consumption in the US. WTI oil was trading around $83.70 per barrel prior to the release of this data point and it tumbled under the $82.00-threshold by the end of the US session. Crude prices are expected to remain under pressure today to notch a fourth consecutive week of decline.
Next 24 Hours Bias
Weak Bearish
