IC Markets Europe Fundamental Forecast | 12 April 2023
What happened in the Asia session?
The Japanese Bank Lending y/y release was 3.0%, lower than the forecasted 3.5% and slightly higher than the previous 3.3%. Core Machinery Orders m/m actual release was -4.5%, better than the forecasted -6.4% but significantly lower than the last 9.5%.
The PPI y/y actual release was 7.2%, higher than the forecasted 7.1% and the previous 8.3%, indicating inflationary pressures that could lead to increased demand for the JPY. However, the decline in lending growth and machinery orders could lead to decreased currency demand.
What does it mean for the Europe & US Sessions?
The data-light European session could see the major consolidate the Asian session moves. Any breakthrough will likely come in the US session when the country’s keenly watched CPI figures are released. USD/CAD should see the most action since BoC’s monetary decision is due afterwards. Favourable development on the Canadian front could see the pair lower towards 1.3400. Alternatively, the Loonie could retest recent highs around 1.3550.
The Dollar Index (DXY)
Key news events today
CPI m/m
CPI y/y
Core CPI m/m
What can we expect from DXY today?
According to the forecasted data, the CPI is expected to increase by 0.2% on a monthly basis and 5.2% on a yearly basis. The previous data showed an increase of 0.4% on a monthly basis and 6.0% on a yearly basis.
If the actual data matches the forecast, it may indicate that the inflation rate is decreasing as rapidly as previously thought. This could lead to a decrease in demand for the US dollar, as the Fed may become less hawkish concerning the rate hike cycle.
However, if the actual data exceeds the forecast, it could indicate that the high inflation rate remains persistent. This could lead to an increase in demand for the US dollar.
Central Bank Notes:
- The US banking system is sound and resilient, but recent developments may result in tighter credit conditions for households and businesses.
- The Federal Reserve has raised the target range for the federal funds rate to 4-3/4 to 5 per cent, committed to returning inflation to its 2 per cent objective.
- In determining the extent of future increases in the target range, the Committee will consider various factors, including the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and economic and financial developments.
- Next meeting is on 3 May 2023
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
As forecasted by the IMF, the expected decline in global real GDP growth will likely increase demand for gold as investors seek to hedge against market volatility and inflation. In addition, the reduced growth rate could lead to decreased interest rates, supporting gold prices as lower interest rates make holding non-yielding assets like gold more attractive.
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?
A more hawkish tone from the speech by RBA Deputy Governor Bullock could give the AUD boost before Thursday’s anticipated weakness in the labour markets.
Central Bank Notes:
- Kept the cash rate unchanged at 3.60%
- Full impact of previous interest rate hikes is yet to be felt.
- Inflation in Australia has peaked, and the central forecast is to decline this year, at around 3% in mid-2025.
- Further tightening of monetary policy may be necessary to achieve the 2 – 3% inflation target
- Next meeting on 2 May 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi may benefit from the significant increase in China’s new loans, with the actual figure of 3890B surpassing the forecasted and previous figures of 3300B and 1810B, respectively. China is one of New Zealand’s major trading partners.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 2023
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Overall, the impact on JPY from Japan’s upcoming data releases is mixed, with the Bank Lending y/y data (forecast 3.5%, previous 3.3%) potentially strengthening the currency. In contrast, the Core Machinery Orders m/m (forecast -6.4%, prior 9.5%) and PPI y/y (forecast 7.1%, previous 8.2%) data could weaken it.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 27 April 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
A higher average interest rate and a high bid-to-cover ratio for the German 30-year bond (previous 2.32|1.1) auction could be positive for the EUR. In contrast, a low bid-to-cover ratio and a lower average interest rate could be negative.
Central Bank Notes:
- ECB raised interest rates by 50 basis points to ensure the 2% inflation target is met
- Inflation is projected to average 5.3% in 2023, with growth at 1%, and underlying price pressures remain strong
- The bank will continue to monitor market tensions closely and will be data-dependent in its policy rate decisions
- Next meeting on 4 May 2023
Next 24 Hours Bias
Mixed
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Due to the absence of any CHF-specific news until Friday’s release of the PPI m/m, the ongoing IMF meetings will probably influence the volatility of the Swiss Franc.
Central Bank Notes:
- Raised policy rate to 1.5% to counter inflationary pressure and ensure price stability. The SNB may need to raise the policy rate further in the future
- The SNB is providing liquidity assistance to Credit Suisse, and the crisis has been halted
- The new inflation forecast assumes a policy rate of 1.5% and puts average annual inflation at 2.6% for 2023 and 2.0% for 2024 and 2025.
- Mortgage and real estate market vulnerabilities persist
- Next meeting on 11 April 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
BOE Gov Bailey Speaks
What can we expect from GBP today?
BOE Governor Bailey is due to speak about the resilience of the global financial system at an online event hosted by the Institute of International Finance. Audience questions are expected; more hawkish is good for the GBP, and vice versa.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 2023
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
BOC Monetary Policy Report
BOC Rate Statement
Overnight Rate
What can we expect from CAD today?
The Overnight Rate is expected to remain at 4.50%. The accompanying Monetary Policy Report and Rate Statement provide insight into BOC’s view of the current economic situation and any changes they may make to the monetary policy. The BOC Press Conference provides further context and clarification on the BOC’s decisions and outlook. Generally, a hawkish stance will lead to an increase in CAD.
Central Bank Notes:
- Bank of Canada maintains its target for the overnight rate at 4.5%
- Inflation eased in January, but price increases for food and shelter remain high
- BOC is prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 12 April 2023
Next 24 Hours Bias
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The rise in crude oil inventories by 377K barrels in the United States, as reported by the American Petroleum Institute, may hurt the oil market in the short term. This unexpected increase (forecast -1.3m) may lead to decreased oil prices due to oversupply.
Next 24 Hours Bias
Weak Bearish
