IC Markets Asia Fundamental Forecast | 2 November 2023
What happened in the US session?
As widely expected, the Federal Reserve kept its Fed Fund rates on hold at 5.50% for the second meeting in a row. The statement describes economic activity expanding at a strong pace in the third quarter of 2023 while jobs gains moderated but inflation remained elevated. However, due to higher Treasury yields, financial and credit conditions have grown tighter which should weigh on growth moving forward.
During the press conference, Chairman Jerome Powell reiterated that the Fed is moving at a meeting-by-meeting pace and more data is required to indicate that inflation is retreating convincingly as he feels that there is still a long way to go to get inflation back down to the Fed’s target of 2.0%.
Powell also made some dovish-sounding remarks, stating that the efficacy of the dot-plot forecasts erodes over time which potentially signals that the probability of one more rate hike is diminishing. The dollar index (DXY) hit a high of 107.10 as the press conference began but swiftly reversed to drop as low as 106.60 by the end of the US trading day.
What does it mean for the Asia Session?
As markets digest the latest FOMC statement and Chairman Powell’s ‘dovish’ rhetoric, the DXY is likely to slide lower towards the 106-threshold as hawkish bets on the greenback begin to fade. It could also be a relatively quiet morning as markets await the next central bank announcement in the latter part of the Europe session.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Unemployment claims surprised to the upside last week and another reading higher than this week’s forecast of 210k could potentially indicate that the US labour market is finally showing some signs of weakening. Higher-than-expected claims could function as a bearish catalyst for the DXY later today.
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
Strong Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Unemployment claims surprised to the upside last week and another reading higher than this week’s forecast of 210k could potentially indicate that the US labour market is finally showing some signs of weakening. Higher-than-expected claims could function as a bearish catalyst for the DXY later today and thus provide a potential lift for gold.
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?
Following the FOMC meeting, the Aussie surged past the key 0.6400-threshold to hit a high of 0.6440 this morning. It was one of the strongest performing currencies this morning but could face significant resistance around 0.6450.
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 was the strongest performing currency in the aftermath of the FOMC meeting as it soared above the key 0.5850-threshold. It is more than likely to remain elevated today but face significant resistance around 0.5900.
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
Strong Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Demand for the greenback plummeted overnight as USD/JPY shed nearly 100 pips overnight. This currency pair tumbled towards 150.00 this morning and is likely to break under this level as the day progresses.
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
Strong Bearish
The Euro (EUR)
Key news events today
Manufacturing PMI (9:00 am GMT)
What can we expect from EUR today?
Manufacturing activity in the Eurozone has contracted over the past 14 months and the final reading for October will be no different. A weak PMI reading could rein in the Euro as it jumped as high as 1.0577 following the FOMC meeting and continued to rise strongly as Asian markets came online, briefly climbing above 1.0600.
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
CPI (7:30 am GMT)
What can we expect from CHF today?
Inflation in Switzerland has been trending lower as a whole and another month of easing could add more pressure on the franc and potentially stem the slide in USD/CHF, especially after yesterday’s FOMC meeting which sparked strong sell-off for the greenback. This caused USD/CHF to dive under 0.9050, shedding nearly 60 pips in the process and is likely to slide lower 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
Strong Bearish
The Pound (GBP)
Key news events today
BoE Monetary Policy Report (12:00 pm GMT)
BoE Gov Bailey Speaks (12:30 pm GMT)
What can we expect from GBP today?
The Bank of England (BoE) will announce its official bank rate at today’s monetary policy meeting where they are expected to keep their rate on hold at 5.25% for the second meeting in a row. Following the FOMC meeting, the Pound bounced strongly to rise towards 1.2200. Hawkish rhetoric – which would be unlikely – from BoE Governor Andrew Bailey could potentially provide another round of boost for the Pound.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to maintain its Official Bank Rate at 5.25%.
- Four members preferred to increase the Bank Rate by 0.25 percentage points, to 5.5%.
- CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term.
- The mean projection for CPI inflation remained unchanged and is expected to decline to 2.0% and 1.9% at the two and three-year horizons, respectively.
- Next meeting is on 2 November 2023.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following the FOMC meeting, USD/CAD fell as dovish sounding remarks by Federal Reserve Chairman Jerome Powell sparked a strong sell-off in the greenback. This currency pair is likely to break under 1.3800 as the day progresses.
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
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude prices rebounded this morning as a ‘dovish’ FOMC meeting diminished the probability of more rate hikes by the Federal Reserve. Rising interest rates could dampen global economic growth and thus add downward pressure on oil prices. WTI oil found support around the $80.00 per barrel region and could edge higher today.
Next 24 Hours Bias
Weak Bullish
