IC Markets Asia Fundamental Forecast | 13 July 2023
What happened in the US session?
The headline and core readings for US CPI printed lower than their respective estimates on a monthly- and annualised-basis for the month of June causing the ongoing US dollar sell-off to accelerate rapidly. The headline CPI came in at 3.0% YoY while the core reading was 4.8% YoY – both lower than the previous month’s reading as well. The dollar index (DXY) cratered as soon the inflation data hit the news wires, diving under 100.60 by the end of the US session.
What does it mean for the Asia Session?
DXY is currently trading around 100.50 and although US dollar weakness is dominating the FX flows, the DXY could retrace higher as the new trading day begins before the downtrend resumes once more. As observed in the past six trading days, US dollar flows will dictate the direction for most of the major FX pairs.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
FOMC Member Waller Speaks (10:45 pm GMT)
What can we expect from DXY today?
The PPI, which measures wholesale inflation in the US, has been retreating sharply for the past one year as both the headline and core readings continue to show significant disinflationary trends for this sector – the latest readings are likely to show continuation of these trends. Meanwhile, unemployment claims have been edging higher for the past two weeks and another higher-than-forecast reading coupled with softer PPI data could reignite another round of heavy selling for the US dollar.
FOMC member Christopher Waller will be speaking about the economic outlook at the Money Marketeers Speech, in New York, where his remarks could provide some support to the US dollar if he continues with similar hawkish rhetoric as his fellow constituents.
Central Bank Notes:
- The federal funds rate target range will be 5 to 5-1/4 per cent.
- The Committee is strongly committed to returning inflation to its 2% 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 is on 26 July 2023
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
FOMC Member Waller Speaks (10:45 pm GMT)
What can we expect from Gold today?
The PPI, which measures wholesale inflation in the US, has been retreating sharply for the past one year as both the headline and core readings continue to show significant disinflationary trends for this sector – the latest readings are likely to show continuation of these trends. Meanwhile, unemployment claims have been edging higher for the past two weeks and another higher-than-forecast reading coupled with softer PPI data could reignite another round of heavy buying for gold. Spot prices hit $1,960/oz overnight and look to be pushing higher this morning.
FOMC member Christopher Waller will speak about the economic outlook at the Money Marketeers Speech, in New York, where his remarks could temper the demand for gold should he continue with similar hawkish rhetoric as his fellow constituents.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
MI Inflation Expectations (1:00 am GMT)
What can we expect from AUD today?
The Melbourne Institute Inflation Expectations remain unchanged at 5.2% for the month of July. Although levels are still elevated presently, they are well below the readings observed over the same period last year.
Central Bank Notes:
- The RBA did not raise the cash rate and kept the target at 4.10%.
- Inflation in Australia has passed its peak but remains high at 7% and needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 1 August 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?
Despite the RBNZ maintaining its official cash rate at 5.50% at yesterday’s monetary policy announcement, the Kiwi broke above 0.6300 as US dollar weakness persists.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment
- Next meeting is on 16 August 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?
Softer inflation data from the US sent USDJPY tumbling towards the 138-region overnight. As the US dollar remains extremely fragile, further downside action can be expected for this currency pair.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- 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%.
- 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 28 July 2023
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
Industrial Production (9:00 am GMT)
What can we expect from EUR today?
The Euro easily smashed above the 1.1100-level on the back of softer US CPI data and could easily extend its gains as upcoming PPI readings and unemployment claims potentially provide an additional catalyst.
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 27 July 2023
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc continues to strengthen significantly against the US dollar as USDCHF broke under 0.8700 – expect further downside pressures for this pair but do not rule out any minor pullbacks along the way.
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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
GDP (6:00 am GMT)
What can we expect from GBP today?
Economic activity in the UK has been anemic and the latest forecast indicates a contraction of 0.3% on a monthly basis. Despite slower growth, the pound is rising sharply as softer inflation data out of the US propelled this pair beyond 1.2980 and could finally breach above 1.3000 for the first time since April 2022.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain the Bank Rate at 4.5%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- 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.
- Next meeting on 3 August 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?
As widely expected, the Bank of Canada (BoC) raised the overnight rate by 25 bps to bring it up to 5.00%. The combination of softer US CPI data and a rate hike by the BoC battered USDCAD as this pair fell as low as 1.3150. It retraced higher overnight but further selling pressures are building this morning.
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% in the summer, but concerns have increased about inflation staying above the 2% target.
- Next meeting on 6 September 2023
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil Inventories increased almost six million barrels versus the meagre estimate of only 483k – marking the first rise in EIA inventory levels in four weeks and that too by a massive margin. Despite increased inventory builds for both the API and EIA stockpiles this week, crude prices remain elevated as WTi oil trades above the $75.50 per barrel region – buoyed by anticipation of stimulus measures from China and comments from US President Joe Biden on replenishing the country’s all-important Strategic Petroleum Reserve.
Next 24 Hours Bias
Medium Bullish
