IC Markets Asia Fundamental Forecast | 17 May 2023
What happened in the US session?
US Core Retail Sales m/m showed actual growth of 0.4% (below the forecasted 0.5%), and previous data indicated a contraction of -0.5%. Retail Sales m/m also grew by 0.4% (below the forecasted 0.8%) with a previous contraction of -0.7%. These figures suggest a modestly negative impact on market sentiment and the USD due to slower retail sales growth and ongoing weakness in the retail sector.
What does it mean for the Asia Session?
A higher-than-expected Australian WPI will likely signal sustained inflationary pressure in the country, prompting the RBA to stay on its hawkish path. Consequently, the Aussie could rebound off the lows near 0.6640 and retest the 0.6700 round figure. Otherwise, a break below 0.6640 would see a drop to 0.6600.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The upcoming data releases for Building Permits and Housing Starts in the United States, with forecasted figures of 1.44 million and 1.40 million, respectively, are expected to have a mixed impact on the USD. Positive data could strengthen the USD, as an increase in Building Permits suggests economic growth, while a slight decrease in Housing Starts may raise concerns about the housing market’s stability and potentially put downward pressure on the dollar.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Slower US retail sales growth and ongoing weakness in the country’s retail sector may have a limited impact on gold, with investors potentially turning to the safe-haven asset amidst weaker consumer demand.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes
What can we expect from AUD today?
The upcoming release of Australia’s Wage Price Index q/q data is expected to impact the currency positively. With a forecasted growth of 0.9%, surpassing the previous quarter’s 0.8%, the data suggests an increase in wage growth in the Australian economy. This could stimulate economic growth and raise inflation concerns, influencing monetary policy decisions to stay hawkish.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 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?
With no major news events today, previously released data will likely influence the NZD price direction, notably the Global Dairy Trade (GDT) Price Index. The latest GDT data shows a decrease of 0.9%, down from the previous 2.5%. This decline could exert downward pressure on the NZD, given the significance of dairy exports to New Zealand’s economy.
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 bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming data releases for the JPY include the Preliminary GDP Price Index y/y with a forecasted value of 2.0% (previous: 1.2%), Preliminary GDP q/q with a predicted value of 0.2% (prior: 0.0%), and Revised Industrial Production m/m with both forecasted and previous deals at 0.8%. Positive surprises in the data could strengthen the JPY, while disappointments may 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 15 June 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The European Final and Final Core CPI have a forecasted and previous value of 7.0% and 5.6%, respectively. Positive trade balance figures could strengthen the Euro, while high inflation may raise concerns and weaken the currency. However, if the actual data aligns with the forecasted figures, the impact on the Euro is expected to be moderate.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 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?
The upcoming data release for Switzerland’s Trade Balance is expected to show a decrease. The forecasted trade balance is 3.73 billion CHF, lower than the previous reading of 4.53 billion CHF. This could weaken the Swiss franc as a smaller trade surplus indicates reduced economic strength and competitiveness in Switzerland’s export sector.
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 22 June 2023
Next 24 Hours Bias
Weak bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Bank of England’s Governor, Andrew Bailey, is set to speak at the British Chambers of Commerce Global Annual Conference in London. His speech could significantly influence the GBP depending on whether he hints towards a hawkish or dovish monetary policy stance. A hawkish outlook, implying potential policy tightening, could boost the GBP, while a dovish view, indicating continued loose policy, could weaken the currency.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The upcoming release of Canadian Foreign Securities Purchases data is expected to increase to 5.22 billion CAD from the previous 4.62 billion CAD. If this forecast holds true, it could positively impact the CAD.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Weak bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The IEA’s warning on a supply crunch and China’s increased demand suggest potential upward pressure on oil prices, while the rise in US crude stocks may help alleviate supply concerns.
Next 24 Hours Bias
Mixed
