IC Markets Asia Fundamental Forecast | 6 November 2023
What happened in the US session?
Non-farm payrolls (NFPs) printed at 150k, which was lower than the estimate of 178k jobs while the unemployment rate increased from 3.8% to 3.9% in October. In addition, September’s job gains of 336k was revised lower to 297k. Overall, it was a weaker-than-expected employment report as the labour market is beginning to show some signs of cooling as several strikes, including from members of the United Auto Workers (UAW), weighed on the manufacturing payrolls. The NFPs functioned as a major bearish catalyst for the dollar index (DXY) as it dived from 105.85 to 104.94 by the end of the US session.
What does it mean for the Asia Session?
Bank of Japan (BoJ) Governor Kazuo Ueda is due to hold a press conference in Nagoya where markets will be looking out for any additional clues on how the BoJ will proceed with its Yield Curve Control (YCC) policy. During last week’s BoJ monetary policy event, the target level of 1% on the 10-year Japanese bond yield was identified as a reference rather than a hard ceiling.
This target reference gives the BoJ flexibility with regards to its future policy actions while increasing the probability of a currency intervention by the Ministry of Finance (MOF) in the not-too-distant future. Whatever the outcome, this press conference is more than likely to be a high-octane event for the Japanese yen.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
Following the weaker-than-expected employment report last Friday, the DXY is likely to remain under pressure as Asian markets digest this latest data point from the US labour market.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the second meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- Next meeting runs from 12 to 13 December 2023.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Following the weaker-than-expected employment report last Friday, the demand for the greenback is likely to wane as Asian markets digest this latest data point from the US labour market and thus potentially provide a lift to gold prices.
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 is one of the strongest performing currencies this morning as it raced past a key swing-high resistance of 0.6500. This currency is likely to remain elevated today.
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
Strong Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi had a strong finish last Friday as it hit the key threshold of 0.6000. This level could potentially act as a major resistance for this currency today.
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
BoJ Gov Ueda Speaks (4:10 am GMT)
What can we expect from JPY today?
Bank of Japan (BoJ) Governor Kazuo Ueda is due to hold a press conference in Nagoya where markets will be looking out for any additional clues on how the BoJ will proceed with its Yield Curve Control (YCC) policy. During last week’s BoJ monetary policy event, the target level of 1% on the 10-year Japanese bond yield was identified as a reference rather than a hard ceiling.
This target reference gives the BoJ flexibility with regards to its future policy actions while increasing the probability of a currency intervention by the Ministry of Finance (MOF) in the not-too-distant future. Whatever the outcome, this press conference is more than likely to be a high-octane event for the Japanese yen.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Medium- to long-term inflation expectations have risen moderately. Even as actual inflation decelerates, inflation expectations are expected to rise moderately toward the end of the projection period, with the output gap turning positive and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations. This will likely lead to a sustained rise in prices accompanied by wage increases.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 December 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Services PMI (9:00 am GMT)
What can we expect from EUR today?
The final reading for Services PMIs in the Eurozone is all but certain to show a third consecutive month of contraction. New business orders – an indicator of future demand – fell the most since January 2021 while hiring nearly stalled. A weaker-than-expected reading is likely to add downward pressure on the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged.
- Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.
- The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 14 December 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 weaker-than-expected employment report last Friday, the demand for the greenback is likely to wane as Asian markets digest this latest data point from the US labour market. USD/CHF fell under the 0.9000-threshold and is likely to remain under pressure 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 Bearish
The Pound (GBP)
Key news events today
Construction PMI (9:30 am GMT)
What can we expect from GBP today?
Construction activity in the UK dropped to 45 in September to mark the third month of contraction in 2023. Total new business activity decreased for the third time in the last four months, reaching its most significant drop in over three years. October’s estimate of 46.2 points to another month of contraction and is likely to weigh on the Pound.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2.
- This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
Ivey PMI (3:00 pm GMT)
What can we expect from CAD today?
Canada’s Ivey PMI expanded strongly over the past two months with stronger-than-expected readings. October’s estimate of 54.0 points to another month of strong business activity which could potentially lift the Canadian dollar and thus drive UDS/CAD lower.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%, for the second meeting in a row.
- Canada’s economy has weakened with growth forecast for 2023 lowered to 1.2% from 1.8%
- Economic growth is expected to continue to be weak, growing 0.9% and 2.5% in 2024 and 2025 respectively.
- The Bank expects CPI inflation to average around 3.5% through the middle of 2024 before gradually easing to 2.0% in 2025.
- However, the near-term path for CPI is higher because of energy prices and ongoing persistence in core inflation.
- Next meeting is on 6 December 2023.
Next 24 Hours Bias
Strong Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
After declining over the last couple of weeks, crude oil prices rose on Monday as fears of further rate hikes by the Federal Reserve begin to diminish. The prospect of tighter production supplies could provide support for prices as the new trading week kicks off. WTI oil opened around $80.60 per barrel this morning and is attempting to climb above the $81-mark.
Next 24 Hours Bias
Weak Bullish
