IC Markets Asia Fundamental Forecast | 22 September 2023
What happened in the US session?
In an unexpected turn of events, the Swiss National Bank (SNB) and the Bank of England (BoE) did not raise their respective policy rates. Market expectations were for both these central banks to raise their interest rates by 25 basis points but they paused and caught many traders off guard.
The SNB kept their policy rate unchanged at 1.75% at yesterday’s monetary policy assessment announcement, stating that the significant tightening of monetary policy over the recent quarters is countering remaining inflationary pressures.
Meanwhile, the BoE’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to maintain its Official Bank Rate at 5.25% and also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes – both actions acting as a significant bearish catalyst for the Pound.
Unemployment claims in the US printed lower than expected for the fifth month in a row as the latest claims of 201k came in much lower than the forecast of 224k – lower claims usually function as a bullish catalyst for the US dollar. The dollar index (DXY) spiked as high as 105.75 in the aftermath of the claims data but the move was short-lived. The DXY proceeded to fall as low as 105.30 by the end of the US session.
What does it mean for the Asia Session?
The Bank of Japan (BoJ) will be the last and final major central bank that will announce its monetary policy decision this week. Although they are widely expected to maintain their interest rate at -0.1%, all eyes will be on Governor Kazuo Ueda and whether he will tweak the BoJ’s yield curve control (YCC) policy yet again. Any increase to the YCC ceiling could cause the Japanese yen to strengthen significantly despite rates remaining unchanged. High volatility is all but certain for USD/JPY today.
The Dollar Index (DXY)
Key news events today
Flash Composite PMI (1:45 pm GMT)
What can we expect from DXY today?
Although still above the key 50-level expansion threshold, the Composite PMI reading has been expanding at an increasingly slower rate over the last three months. A weaker expansion in the service sector combined with a renewed decline in manufacturing output led to the marginal decrease in total new business in August. The flash readings for September point to a slight improvement. Despite any slowdown in economic activity, the DXY is on track to notch a tenth consecutive week of gains.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 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 31 October to 1 November 2023.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Flash Composite PMI (1:45 pm GMT)
What can we expect from DXY today?
Although still above the key 50-level expansion threshold, the Composite PMI reading has been expanding at an increasingly slower rate over the last three months. A weaker expansion in the service sector combined with a renewed decline in manufacturing output led to the marginal decrease in total new business in August. The flash readings for September point to a slight improvement. The ongoing strength of the DXY is adding further downward pressure on gold price but this precious metal has managed to stay above the key $1,900/oz threshold thus far.
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 flash Composite PMI reading in Australia showed a return to expansion after contracting over the past two months. The reading of 50.2 was the highest in four months as growth was driven primarily by improvements in the service sector while the manufacturing sector output fell at a faster rate in September. After tumbling hard following the FOMC meeting, the Aussie has found support around the 0.6400-level but risks to the downside remain.
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 is on 3 October 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?
Just like its Pacific neighbour, the Kiwi dived sharply following the FOMC meeting but it found support around the 0.5900-mark and has managed to stay above this level thus far. However, risks to the downside for this currency remain.
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 Bullish
The Japanese Yen (JPY)
Key news events today
BoJ Monetary Policy Statement (Tentative)
BoJ Press Conference (Tentative)
What can we expect from JPY today?
The Bank of Japan (BoJ) will be the last and final major central bank that will announce its monetary policy decision this week. Although they are widely expected to maintain their interest rate at -0.1%, all eyes will be on Governor Kazuo Ueda and whether he will tweak the BoJ’s yield curve control (YCC) policy yet again. Any increase to the YCC ceiling could cause the Japanese yen to strengthen significantly despite rates remaining unchanged. High volatility is all but certain for USD/JPY 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
Medium Bullish
The Euro (EUR)
Key news events today
Flash Composite PMI (8:00 am GMT)
What can we expect from EUR today?
The Composite PMI has contracted for the past three months in the Eurozone as a broad-based decline in the manufacturing and services sectors caused this index to fall to 47 in August – services contracting for the first time in 2023. The flash reading for September points to a fourth consecutive month of contraction. Following the FOMC meeting, the Euro tumbled hard to slide down towards 1.0630 and could break below this level by the end of today.
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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss National Bank (SNB) unexpectedly kept the policy rate unchanged at 1.75% at yesterday’s monetary policy assessment announcement, stating that the significant tightening of monetary policy over the recent quarters is countering remaining inflationary pressures. This caused USD/CHF to spike as high as 0.9080, gaining 90 pips in the process. Combined with a hawkish Federal Reserve, this currency pair is likely to remain elevated 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
Weak Bullish
The Pound (GBP)
Key news events today
Flash Composite PMI (8:30 am GMT)
What can we expect from GBP today?
The Bank of England’s Monetary Policy Committee voted by a majority of 5-to-4 to maintain its Official Bank Rate at 5.25% and also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes – both actions acting as a significant bearish catalyst for the Pound.
The Composite PMI contracted for the first time in seven months in August as business activity reduced in the manufacturing and service sectors, with the former posting a much faster rate of decline. The flash reading for September points to another month of contraction, highlighting the ongoing slowdown in the British economy. The Pound is expected to remain under heavy downward pressure today.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
Retail Sales (12:30 pm GMT)
What can we expect from CAD today?
Retail sales in Canada are expected to increase by 0.4% MoM in August from the previous month while the core reading is anticipated to increase by 0.5% MoM. However, sales declined 0.6% on an annualised basis, which was the first time since the pandemic lockdowns in 2020. Declining sales are signs of weaker consumer spending which does not bode well for the overall economy but higher crude prices have strengthened the Canadian dollar in recent weeks causing USD/CAD to drop as low as 1.3380 this week.
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 meeting is on 25 October 2023.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
After the sharp pullback in crude oil prices since Tuesday, this commodity is climbing higher once more as concerns surrounding a Russian ban on fuel exports could further tighten the global oil supply. WTI oil found relatively strong support around the $89 per barrel mark and is likely to close in the green today. Despite this, crude prices are all but certain to notch a first loss in four weeks.
Next 24 Hours Bias
Weak Bullish
