IC Markets Asia Fundamental Forecast | 12 May 2023
What happened in the US session?
The MPC Official Bank Rate Votes for GBP remained constant at 7-0-2, indicating a unanimous agreement to increase the Official Bank Rate by 25bps to 4.50%.
The US Core PPI data matched expectations, while the PPI data fell slightly below expectations. The Unemployment Claims data exceeded forecasted and previous figures, indicating a slight deterioration in the labour market.
What does it mean for the Asia Session?
NZD/USD could drop towards 0.6260 if New Zealand’s Inflation Expectations q/q fall below the previous figure of 3.3%. Alternatively, a rise in the quarterly data would propel the Kiwi to retest recent highs around 0.6380.
The Dollar Index (DXY)
Key news events today
Prelim UoM Consumer Sentiment
What can we expect from DXY today?
The upcoming release of the Preliminary UoM Consumer Sentiment data, with a forecasted index of 63.0 compared to the previous reading of 63.5, is expected to impact the value of the USD. A decline in consumer sentiment could lead to reduced spending and investment, potentially weakening the USD.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The slightly lower-than-expected US PPI data and deteriorating labour market could support gold as a safe-haven asset.
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?
No major news events today are expected to impact the AUD. Its direction will likely depend on previously released MI Inflation Expectations, reported at 5.0%, slightly higher than the previous figure of 4.6%. These inflation expectations can influence the value of the AUD as they play a role in shaping monetary policy decisions and investor sentiment.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 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 previous quarter’s data indicated a 3.30% inflation expectation on a quarterly basis. A higher-than-expected inflation reading could strengthen the NZD, as it may signal an overheating economy and prompt the Reserve Bank of New Zealand to consider raising interest rates. Conversely, if the data shows a lower inflation expectation than the previous quarter, it could lead to a weaker NZD, as the RBNZ might postpone interest rate hikes, deeming the economy stable or underperforming.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 2023
Next 24 Hours Bias
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming release of Japan’s M2 Money Stock year-on-year data is forecasted to be 2.5%, slightly lower than the previous period’s growth rate of 2.6%. A decrease in the M2 Money Stock growth rate suggests a slower money supply expansion, which may negatively affect the JPY.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 15 June 2023
Next 24 Hours Bias
Weak bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The upcoming French Final CPI m/m is expected to show a 0.6% increase, matching the previous reading. If the CPI reading deviates significantly from the forecasted figure, it could impact the euro’s value. A higher-than-expected CPI may lead to speculation of potential monetary tightening measures, potentially strengthening the euro. Conversely, a lower-than-expected CPI could weaken the euro as it may dampen expectations of future interest rate hikes.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 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?
The SNB Chairman, Thomas Jordan, stated that the current monetary policy needs to be more restrictive and expressed concerns about inflation being above the desired range for price stability.
Central Bank Notes:
- Raised policy rate to 1.5% to counter inflationary pressure and ensure price stability. The SNB may need to raise the policy rate further in the future
- The SNB is providing liquidity assistance to Credit Suisse, and the crisis has been halted
- The new inflation forecast assumes a policy rate of 1.5% and puts average annual inflation at 2.6% for 2023 and 2.0% for 2024 and 2025.
- Mortgage and real estate market vulnerabilities persist
- Next meeting on 22 June 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 upcoming release of the GBP GDP m/m data, with a forecasted value of 0.0% and the previous value of 0.0%, is expected to have a moderate impact on the GBP. If the data aligns with the forecast, it would indicate stagnant economic growth for the month, potentially leading to a subdued market reaction. However, any significant deviation from the estimates could result in increased volatility for the GBP, with a higher-than-expected value potentially strengthening the currency. In contrast, a lower-than-expected value could weaken it.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The CAD is not expected to be affected by major news events today. Instead, the recently released Building Permits m/m figures will likely influence its price direction. The latest statistics show a significant growth of 11.3%, surpassing the forecasted decline of 2.3% and the previous increase of 5.5%. This positive trend in the Canadian construction sector may attract more investors and strengthen the CAD in the short term.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Weak bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Former U.S. Treasury Secretary, Janet Yellen, warned that a U.S. default would pose a threat to the global economy. Additionally, OPEC expressed worries that economic risks may offset Chinese growth elsewhere. These developments have the potential to negatively significantly impact oil prices.
Next 24 Hours Bias
Weak bearish
