IC Markets Asia Fundamental Forecast | 31 August 2023
What happened in the US session?
Both the ADP Employment Report and data and the second estimate for Q2 GDP failed to beat their respective estimates. The ADP report showed that 177k jobs were added in the month of August versus the estimate of 194k – this reading was also much lower than July’s figures of 371k. Job growth slowed notably, driven heavily by leisure and hospitality after months of strong hiring.
Meanwhile, the second estimate for Q2 GDP dropped to 2.1% YoY from the previous estimate of 2.4% YoY as private inventory investment and non-residential fixed investment along with exports led the downward revision.
The dollar index (DXY) dived for the second consecutive day during the US trading hours, falling from 103.55 to 102.95 as the combination of slower job growth and lower GDP figures for the second quarter may lead to the Federal Reserve turning less hawkish with regards to their current monetary policy stance.
What does it mean for the Asia Session?
The DXY retraced above 103.00 by the end of the US session but it then proceeded to slide lower, falling under 103.00 once more. Weakness for the greenback can be expected today.
The Dollar Index (DXY)
Key news events today
PCE Price Index (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
July’s PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – will be released later today. The headline and core PCE readings for the month of June declined quite significantly but with July’s CPI and PPI data showing a recent uptick, there are growing concerns that inflation may possibly make a resurgence in the US and the latest PCE readings could confirm these fears.
Meanwhile, unemployment claims printed lower than the estimate last week to mark the second consecutive week of lower claims. Higher volatility can most certainly be expected at the point of news release for these two economic data points. A combination of higher PCE readings with lower-than-expected claims could function as a major 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
PCE Price Index (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
July’s PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – will be released later today. The headline and core PCE readings for the month of June declined quite significantly but with July’s CPI and PPI data showing a recent uptick, there are growing concerns that inflation may possibly make a resurgence in the US and the latest PCE readings could confirm these fears.
Meanwhile, unemployment claims printed lower than the estimate last week to mark the second consecutive week of lower claims. Higher volatility can most certainly be expected at the point of news release for these two economic data points. A combination of higher PCE readings with lower-than-expected claims could function as a major bullish catalyst for the DXY and thus gold prices could come under heavy selling pressures.
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?
With headline CPI slowing to 4.9% YoY, inflation is retreating quite steadily in Australia. The Aussie dollar surged as high as 0.6520 in the aftermath of yesterday’s ADP employment and GDP reports from the US before giving up nearly all of the initial gains as it pulled back towards 0.6470. It is now climbing strongly again as Asia markets came online and could remain elevated today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second 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 5 September 2023.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Similarly to its Pacific neighbour, the Kiwi briefly surged above 0.6000 before giving up all of the initial gains overnight. It found support around the 0.5950-region before climbing towards 0.5980 this morning.
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 Bullish
The Japanese Yen (JPY)
Key news events today
Retail Sales (11:50 pm GMT)
What can we expect from JPY today?
Retail sales jumped to grow 6.8% YoY in July, which was higher than the forecast of 5.5% YoY, as sales expanded for the 17th consecutive month. Meanwhile, USD/JPY dropped as low as 145.60 in the aftermath of yesterday’s ‘weaker’ ADP report and Q2 GDP figures from the US – this currency pair then proceeded to rebound as high as 146.30 before resuming the downturn this morning.
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 Bearish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT)
What can we expect from EUR today?
Flash readings for August’s headline and core CPI readings in the Eurozone will be released today with the respective forecasts pointing to a gradual slowdown. Meanwhile, the Euro spiked 1.0945 overnight in the aftermath of yesterday’s US economic data and could remain elevated 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 on 14 September 2023.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
Retail Sales (6:30 am GMT)
What can we expect from CHF today?
USD/CHF fell as low as 0.8745 overnight in the aftermath of yesterday’s US economic data but is rebounding higher this morning. Retail sales grew 1.8% YoY in June which marked the first month of growth on an annualised basis in nine months. July’s estimate points to another annualised gain of 1.5%. A stronger than expected reading could cause this currency pair to resume the downturn.
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 jumped above 1.2745 in the aftermath of yesterday’s ‘weaker’ ADP report and Q2 GDP figures from the US and could remain elevated today.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
With demand for the US dollar plunging overnight, USD/CAD dropped as low as 1.3520 in the aftermath of ‘weaker’ US economic data. This currency pair is retracing higher this morning but it could eventually reverse to resume the downturn.
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- 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 on 6 September 2023.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
China PMI (1:30 am GMT)
What can we expect from Oil today?
Following the huge drawdown of nearly 11.5M barrels in API stockpiles, EIA oil inventories also followed suit as 10.6M barrels of crude were drained from storage. This latest drawdown was also much higher than the forecast of a 2.2M-barrel drawdown. Despite the dual combination of higher drawdowns in US inventories, WTI oil tumbled under $81 per barrel before rebounding towards $81.50 towards the end of the US session.
Oil traders will also be watching China’s latest PMI reports today, especially for the manufacturing sector, as any uptick in activity and new orders could function as a bullish catalyst for crude.
Next 24 Hours Bias
Weak Bearish
