IC Markets Asia Fundamental Forecast | 18 September 2023
What happened in the US session?
General business conditions for the Empire State Manufacturing Index rose by 21 points to 1.9 in September as new orders and shipments increased. However, the increases in input and selling prices continue to pick up pace.
Meanwhile, the preliminary results of the University of Michigan’s Consumer Sentiment survey remained flat in September as consumers as a whole continue to be relatively tentative about the direction of the US economy. In addition, consumers have also taken note of the stalling slowdown in inflation, but they do expect the slowdown to resume eventually.
The dollar index (DXY) ranged between 105.15 and 105.40 last Friday after surging strongly the day before on a combination of a higher US CPI reading, weaker than expected unemployment claims figures and a neutral outlook by the ECB following their monetary policy decision on the 14th.
What does it mean for the Asia Session?
The DXY traded around the 105.30-level as markets re-opened today. With all eyes on Federal Reserve Chairman Jerome Powell and the upcoming FOMC meeting this week, demand for the US dollar is likely to remain strong but there could be pull backs in the initial part of the new trading week.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The DXY traded around the 105.30-level as markets re-opened today. With all eyes on Federal Reserve Chairman Jerome Powell and the upcoming FOMC meeting this week, demand for the US dollar is likely to remain strong but there could be pull backs in the initial part of the new trading week.
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
No major news events.
What can we expect from Gold today?
Gold prices opened at $1,923/oz this morning to climb towards $1,930 – a level where price has run into significant resistance since early September. Should demand for the US dollar wane at the beginning of the new trading week, gold could finally push above this key short-term resistance level.
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 rose strongly this morning to initially climb as high as 0.6445. It sold off quite sharply last Friday and the downturn could resume this week, especially with the upcoming FOMC meeting running from 19th to 20th September.
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi opened strongly this morning to initially climb as high as 0.5920. It has ranged between 0.5890 and 0.5940 for most parts of last week and it could continue to trade within this range today.
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
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With strong demand for the US dollar last week, USD/JPY broke above the key short-term resistance level at 147.80. However, this currency pair gapped lower this morning to open at 147.66 and could drift lower today.
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 notched a ninth consecutive week of losses as markets interpreted the latest monetary policy statement by the ECB and President Christine Lagarde’s press conference that this central bank has concluded its tightening cycle, which triggered the Euro to sell-off aggressively on the 14th of September. With the FOMC meeting being the most important economic event this week, further downward pressure on the Euro can be expected.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
USD/CHF gapped lower this morning to open at 0.8945 but then proceeded to rise as high as 0.8977. With the Swiss National Bank releasing their monetary policy statement this week along with the Federal Reserve, higher volatility for this currency pair is all but certain.
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
No major news events.
What can we expect from GBP today?
The Pound experienced two consecutive weeks of hard losses and is likely to remain under pressure this week but could get a much-needed boost when the Bank of England announces its monetary policy statement on the 21st. The Pound climbed 1.2940 at the open but then started to drift lower once more.
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
IPPI (12:30 pm GMT)
RMPI (12:30 pm GMT)
What can we expect from CAD today?
Both the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) increased stronger than their respective forecast on a monthly basis in July, potentially hinting to inflation creeping back into the industrial and consumer sectors. Another month of higher-than-expected readings could raise concerns for the Bank of Canada in their ongoing efforts to tame inflation. USD/CAD opened at 1.3515 this morning to climb as high as 1.3530 but could drift lower as higher crude prices have caused the currency pair to fall strongly since early-September.
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 Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices remain buoyed following another round of China stimulus last week and stronger than expected industrial production activity for the world’s second largest economy. WTI oil notched a third consecutive week of strong gains as price climbed $91 per barrel for the first time in ten months.
Next 24 Hours Bias
Medium Bullish
