IC Markets Asia Fundamental Forecast | 26 July 2023
What happened in the US session?
The Conference Board Consumer Confidence Index improved once more in July, rising for the second consecutive month to reach 117.0, up from 110.1 in June. This is also the highest reading since July 2021. Despite rising interest rates, American consumers are more upbeat – likely stemming from lower inflation and a robust labour market. The dollar index (DXY) climbed as high as 101.65 overnight before pulling back towards 101.25 during early Asia trading hours.
What does it mean for the Asia Session?
The DXY is rising towards 101.50 as trading during the Asia session gets under way. With virtually every market participant fixating their attention and focus on the upcoming FOMC statement release and press conference later during the US session, markets could be relatively subdued for most parts of today.
The Dollar Index (DXY)
Key news events today
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from DXY today?
The Federal Reserve is all but certain to raise interest rates once more by 25 bps to bring the target rate to 5.5% despite strong disinflationary trends in the US as evident in the recent CPI and PPI readings. As the labour market remains extremely resilient which translates into relatively strong consumer spending, Chairman Jerome Powell and his fellow FOMC members see no reason to pause rate hikes at the present moment.
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 Bullish
Gold (XAU)
Key news events today
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from Gold today?
We can definitely see higher volatility at the point of the FOMC statement announcement as well as during Chairman Jerome Powell’s press conference. The demand (or lack of demand) for the US dollar will most certainly drive gold prices later today. This precious metal is trading around $1,960/oz during the Asia session.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
CPI (1:30 am GMT)
What can we expect from AUD today?
Inflation in Australia peaked at 8.4% YoY in December last year and has been decelerating steadily. Headline CPI eased to 5.4% YoY in June, declining from 5.5% in May. The latest report showed Inflation retreating across every other CPI metric and with the Federal Reserve widely expected to raise the Fed Funds rate by 25 bps later today, the Aussie is likely to remain under pressure.
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 Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Just like its neighbour, the Kiwi dollar is falling hard this morning as the combination of weaker-than-expected inflation figures out of Australia and the anticipation of the FOMC meeting later today act as a major catalyst. This currency pair is also likely to remain under pressure for most parts of today.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
All eyes will be on the Federal Reserve later today and volatility can be expected for this currency pair as the FOMC statement is released followed by the press conference helmed by Chairman Jerome Powell. USDJPY is trading above 141.00 this morning and could drift higher as the day progresses.
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
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The ifo Business Climate index in Germany printed at 87.3 which was lower than the forecast of 88.0 and also lower than last month’s reading of 88.5. Declining business conditions in Germany are weighing on the Euro and further downward pressures can be expected today as markets await the latest FOMC interest rate announcement 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 27 July 2023
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After hitting a low of 0.8630 overnight, USDCHF is rebounding strongly this morning as market participants wait in anticipation of the latest announcement by the Federal Reserve on the Fed funds rate.
- 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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
All eyes will be on the Federal Reserve later today and volatility can be expected for this currency pair as the FOMC statement is released followed by the press conference helmed by Chairman Jerome Powell. The pound is currently retreating after hitting 1.2900 overnight.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
All eyes will be on the Federal Reserve later today and volatility can be expected for this currency pair as the FOMC statement is released followed by the press conference helmed by Chairman Jerome Powell. USDCAD is rising strongly this morning as it already breached 1.3200 once and is likely to climb above this level again as the day progresses.
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 Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
API inventory levels suffered a surprise increase of 1.3M barrels versus the forecast of a drawdown of nearly 800k barrels. This unexpected rise in stockpiles cause WTI oil to retreat sharply from yesterday’s high of $79.70 – it is now currently trading around $79.00 per barrel and could continue to slide should EIA inventory levels report an unexpected increase as well – the EIA forecast for today is a drawdown of 2.4M barrels.
Next 24 Hours Bias
Medium Bearish
