IC Markets Asia Fundamental Forecast | 20 October 2023
What happened in the US session?
After three weeks of trending higher, unemployment claims in the US fell to 198k which was also lower than the forecast of 210k – this usually functions as a bullish catalyst for the US dollar as lower-than-expected claims signal a robust and resilient labour market.
Meanwhile, Federal Reserve Chairman Jerome Powell reiterated a neutral outlook with regards to monetary policy, just like Governor Christopher Waller the day before. Chairman Powell “suggested that the central bank is inclined to hold interest rates steady again at its next meeting, while leaving open the possibility of a future hike if policymakers see further signs of resilient economic growth”. His comments reaffirm market expectations that the Fed will keep rates on hold on November 1st for the second meeting in a row.
The dollar index (DXY) was trading around 106.40 prior to Powell taking the centre stage but it tumbled towards 106.00 in the aftermath of his speech but retraced higher to close around 106.20 by the end of the US session.
What does it mean for the Asia Session?
The US dollar was one of the stronger performing currencies as Asia came online. The DXY continued to climb higher and could push towards 106.50 during Asina trading hours.
The Dollar Index (DXY)
Key news events today
FOMC Member Harker Speaks (1:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Philadelphia President Patrick Harker is due to speak about the economic outlook at the Risk Management Association in Philadelphia where audience questions are expected. Should he follow in the footsteps of Chairman Jerome Powell’s speech yesterday, the US dollar could once again come under pressure during the US session.
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 Bearish
Gold (XAU)
Key news events today
FOMC Member Harker Speaks (1:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of Philadelphia President Patrick Harker is due to speak about the economic outlook at the Risk Management Association in Philadelphia where audience questions are expected. Should he follow in the footsteps of Chairman Jerome Powell’s speech yesterday, the US dollar could once again come under pressure and thus drive gold prices higher during the US session.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie fell as low as 0.6310 overnight but found some around this level to bounce higher as Asian markets came online. It was rising quite strongly towards 0.6330 and could continue to move higher as the day progresses.
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
RBNZ Statement of Intent (Tentative)
What can we expect from NZD today?
The Reserve Bank of New Zealand (RBNZ) will release its statement of intent which will highlight the board’s objectives for the next three years as well as the budget for the first year of that period. The report will also provide insights into the RBNZ’s strategic priorities for the next financial year. A hawkish tone could provide a much-need lift for the Kiwi which tumbled 30 pips overnight, falling as low as 0.5820.
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 Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The core Consumer Price Index (CPI) in Japan eased to 2.8% YoY in September, slowing from 3.1% YoY in August. Weak inflationary pressures give further resolve to the Bank of Japan to maintain their ultra-dovish monetary policy stance which is more than likely to keep USD/JPY elevated in the near-term.
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 PPI (6:00 am GMT)
What can we expect from EUR today?
Although the Producer Price Index (PPI) for Germany increased 0.3% MoM in August, the annualised reading tumbled 12.6% YoY to mark the second consecutive month of decline as manufacturing activity for Europe’s largest economy continues to contract. Although September’s estimate points to an increase of 0.4% MoM, the PPI reading is likely to contract for the third time on a yearly basis. The Euro could come under pressure should the PPI reading show continued disinflationary momentum.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following Federal Reserve Chairman Jerome Powell’s neutral speech overnight, USD/CHF tumbled as low as 0.8900. This currency pair retracted slightly higher at the start of the Asian session but it is likely to slide lower as the day progresses.
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
Retail Sales (6:00 am GMT)
What can we expect from GBP today?
Retail sales in the UK rose 0.4% MoM in August 2023, partially recovering from a fall of 1.1% in July. With September’s estimate pointing to a decline of 0.3% MoM, sales have been mixed over the past three months and a weaker-than-expected print is likely to weigh negatively on the Pound.
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
Retail Sales (12:30 pm GMT)
What can we expect from CAD today?
Canada’s retail sales fell 0.3% MoM in August based on the preliminary estimate. If the final reading remains unchanged from this estimate, it would mark the first monthly decline in five months and could drive USD/CAD higher during the US session.
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
No major news events.
What can we expect from Oil today?
Crude oil prices rose for the third day in a row as markets anticipate another likely hold on interest rate hikes by the Federal Reserve – higher rates could stifle global economic activity which would potentially temper the demand for crude. In addition, the Middle East conflict appears to be worsening which is keeping prices elevated with WTI oil climbing above the $88.00 per barrel overnight and looks all set to notch its second consecutive week of gains.
Next 24 Hours Bias
Medium Bullish
