IC Markets Asia Fundamental Forecast | 11 August 2023
What happened in the US session?
The US headline and core CPI readings both printed lower than their respective estimates, coming in at 3.2% and 4.7% respectively YoY while unemployment claims were stronger than expected with 248k claims being filed versus the forecast of 230k. Furthermore, this reading was also higher than the previous week. In addition, Federal Reserve Bank of Philadelphia President Patrick Harker also dropped remarks during his online event that “the Federal Reserve is making progress in its fight against inflation”.
All of the above should have led to a major sell-off in the US dollar. However, this sell-off was exceptionally brief as the dollar index (DXY) fell as low as 101.80 in the aftermath of the CPI and claims data release before swiftly reversing to rebound as high as 102.65.
What does it mean for the Asia Session?
As Asian markets come online and digest this latest inflation and unemployment claims data points, the DXY has retreated from its overnight high. It is practically an empty calendar this morning and we could see the DXY drift lower at the start of the final trading day of the week.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
UoM Consumer Sentiment Index (2:00 pm GMT)
What can we expect from DXY today?
Headline PPI, which measures wholesale inflation, has been falling steadily since its peak of 11.7% in March 2022 along with the core reading, which also peaked in March at 9.6% YoY. The annualised readings for both headline and core PPI are expected to indicate a continued decline, potentially functioning as a major bearish catalyst for the DXY later today.
Meanwhile, the preliminary survey findings on Consumer Sentiment by the University of Michigan will be released today as well. Inflation expectations edged slightly higher from 3.3% in June to 3.4% in July. The initial estimate for August’s reading shows inflation expectations rising to 3.8%. Should the actual figure print higher than 3.8%, it could act as a short-term bullish catalyst for DXY.
Central Bank Notes:
- The federal funds rate target range will be 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 19 to 20 September 2023.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
PPI (12:30 pm GMT)
UoM Consumer Sentiment Index (2:00 pm GMT)
What can we expect from Gold today?
Headline PPI, which measures wholesale inflation, has been falling steadily since its peak of 11.7% in March 2022 along with the core reading, which also peaked in March at 9.6% YoY. The annualised readings for both headline and core PPI are expected to indicate a continued decline, potentially functioning as a major bearish catalyst for the DXY and could drive gold higher later today.
Meanwhile, the preliminary survey findings on Consumer Sentiment by the University of Michigan will be released today as well. Inflation expectations edged slightly higher from 3.3% in June to 3.4% in July. The initial estimate for August’s reading shows inflation expectations rising to 3.8%. Should the actual figure print higher than 3.8%, it could act as a short-term bullish catalyst for the DXY and potentially put downward pressure on gold prices.
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 dollar fell to a low of 0.6510 overnight as demand for the US dollar increased during the US session. This currency pair has found some support around this region and could retrace higher as the day progresses.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second 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 on 5 September 2023.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
As demand for the US dollar increased overnight, the Kiwi tumbled as low as 0.6010. This pair has found some support around this level but the downward trend could resume as the day progresses.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment.
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%.
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment.
- Next meeting is on 16 August 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?
Despite stronger unemployment claims and an overall ‘softer’ CPI reading from the US, demand for the greenback increased overnight causing USDJPY to hit a high of 144.90. This currency pair could pull back in the initial part of the day before resuming the uptrend.
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%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro touched 1.1065 overnight before reversing to shed all the initial gains, falling as low as 1.0975. With the US dollar beginning to look fragile this morning, it could climb above 1.1000 once more.
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 on 14 September 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?
The Swiss franc has been pretty resilient in the face of a strong US dollar and USDCHF has been ranging between 0.8700 and 0.8780 for the past week or so. With the greenback losing its shine this morning, this pair looks to be heading towards 0.8750.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- 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 GDP is projected to grow around 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
GDP (6:00 am GMT)
What can we expect from GBP today?
UK GDP has been rather anaemic over the last two quarters, growing only 0.2% in the first quarter of 2023. Economic growth for the second quarter is not expected to show a huge uptick in activity. With the US dollar looking fragile, the Pound could climb higher today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 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?
After hitting a high of 1.3450 overnight, USDCAD is pulling back from this level this morning and could drift lower as the day progresses.
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- 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 on 6 September 2023.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
After recent China data showed the consumer segment slipping into deflation, crude oil prices slid as WTI oil retreated from its high of $82.30 per barrel. Factory gate prices also declined further in July, raising concerns that fuel demand in the world’s largest import of crude is weakening. In addition, the latest energy data from China showed oil imports falling to a 6-month low of 10.4M barrels per day. After six consecutive weeks of gains, this commodity is likely to close in the red this week.
Next 24 Hours Bias
Medium Bearish
