IC Markets Asia Fundamental Forecast | 13 September 2023
What happened in the US session?
The NFIB Small Business Index declined to 91.3 for the month of August as small business owners’ views on future sales growth and business conditions remain discouraging while prices rose slightly – inflation remains a high concern for this group. The dollar index (DXY) climbed as high as 104.90 before falling to 104.50 overnight.
What does it mean for the Asia Session?
The DXY has found relatively strong support around the 104.50-level this week thus far. It could continue to range between 104.50 and 105.00 during the Asia session as there is not a single notable event on the economic calendar to trigger a strong move in either direction this morning.
The Dollar Index (DXY)
Key news events today
CPI (12:30 pm GMT)
What can we expect from DXY today?
US CPI data is one of the most anticipated economic events of the week. With headline CPI rising to 3.2% YoY in July from 3.0% YoY from the previous month and the forecast for August pointing to another increase to 3.6% YoY, inflationary pressures appear to be returning to the forefront. This would cause the Federal Reserve to maintain its hawkish monetary policy stance and perhaps even increase interest rates once more at next week’s FOMC meeting. A hotter than expected CPI reading is more than likely to function as a bullish catalyst for the 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
Weak Bullish
Gold (XAU)
Key news events today
CPI (12:30 pm GMT)
What can we expect from Gold today?
US CPI data is one of the most anticipated economic events of the week. With headline CPI rising to 3.2% YoY in July from 3.0% YoY from the previous month and the forecast for August pointing to another increase to 3.6% YoY, inflationary pressures appear to be returning to the forefront. This would cause the Federal Reserve to maintain its hawkish monetary policy stance and perhaps even increase interest rates once more at next week’s FOMC meeting. A hotter than expected CPI reading is more than likely to function as a bullish catalyst for the DXY and thus drive gold prices lower.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie traded around 0.6420 overnight but was looking weak as Asia markets came online. With US CPI data looming in the latter part of the day, the Aussie could break below 0.6400 with ease should inflationary pressures return for the US and trigger renewed demand for the greenback.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third 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 3 October 2023.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi traded around 0.5900 overnight but was looking weak as Asia markets came online. With US CPI data looming in the latter part of the day, the Kiwi could come under heavy selling pressures should US inflation come in hotter than expected to trigger renewed demand for the greenback.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
Machinery Orders (11:50 pm GMT)
What can we expect from JPY today?
Japan’s core machinery orders, which excludes shipping and electric power companies, rose 2.7% MoM in June following a large decline of 7.6% in May. July’s estimate points to a decline of 0.7%m highlighting the current unevenness for this industry metric. USD/JPY climbed as high as 147.20 overnight before pulling back slightly as Asian markets came online – this currency pair is now rising strongly towards 147.50.
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
Medium Bullish
The Euro (EUR)
Key news events today
Industrial Production (9:00 am GMT)
What can we expect from EUR today?
After increasing 0.5% MoM in June, industrial production for the Eurozone is expected to decline 0.8% in July. With the Composite PMI contracting for the second consecutive month in Europe, weaker production should not come as a surprise and could potentially weigh on the Euro during the European trading hours.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following the weakness in the US dollar yesterday, USD/CHF dropped as low as 0.8900 overnight but has bounced back quite strongly this morning to rise towards 0.8920.
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
Weak Bullish
The Pound (GBP)
Key news events today
GDP (6:00 am GMT)
What can we expect from GBP today?
The UK’s economy grew 0.54% MoM in June which was the highest growth rate since last October – this was mainly driven by the manufacturing, construction and services sectors. However, the current forecast for July points to a decline of 0.2% MoM. With the Composite PMI falling into contraction in August, weaker growth in the UK should be expected. The Pound could come under selling pressure during the European trading hours.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following the weakness in the US dollar yesterday, USD/CAD dropped as low as 1.3545 before consolidating around 1.3555. This currency pair looks to have some support around this level and could edge higher during the Asian trading hours.
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 24 Hours Bias
Weak Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The latest OPEC monthly report highlights a shortfall of 3 million barrels of crude per day in the fourth quarter of 2023 as Saudi Arabia and Russia both extend their voluntary production cuts. Global oil markets potentially face the biggest supply deficit in more than a decade and with demand remaining strong, crude prices have surged since mid-July.
Meanwhile, API crude oil stocks increased by 1.2M barrels versus an estimate of a 2M drawdown. This surprise increase in stockpiles was not enough to hold back crude prices as WTI oil rose from $88.00 to touch $88.50 following this news release.
Next 24 Hours Bias
Weak Bullish
