IC Markets Asia Fundamental Forecast | 3 August 2023
What happened in the US session?
The ADP Non-Farm Payrolls (NFPs) registered another blowout figure for the month of July as 324k jobs were added versus the estimate of 191k. Job creation remained robust with leisure and hospitality again driving growth while the manufacturing industry shed jobs for the fifth straight month. A healthy labour market continues to support household spending although a slow down in pay growth continues.
This ADP NFP print was the second highest job gains this year after July’s number which lit a fire under the dollar index (DXY) causing it to jump from 102.25 to as high as 102.75 while gold prices fell as low as $1,933/oz overnight.
What does it mean for the Asia Session?
After a surge in the DXY during the US session, a pullback for this index can be expected in the initial part of the trading day before the uptrend continues. Furthermore, it is an empty calendar during the Asia session.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from DXY today?
Not only have unemployment claims in the US been trending lower over the last three weeks, they have also printed below their respective forecasts signalling a resilient labour market. Another weaker than expected reading is likely to function as a positive catalyst for the DXY once more, especially after yesterday’s robust NFPs by ADP. The ISM Services PMI is forecasted to expand for the seventh time this year as this sector continues to pull up overall economic activity in the US.
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
Medium Bullish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Not only have unemployment claims in the US been trending lower over the last three weeks, they have also printed below their respective forecasts signalling a resilient labour market. Another weaker than expected reading is likely to function as a negative catalyst for gold once more, especially after yesterday’s robust NFPs by ADP. Spot prices are currently trading around $1,935/oz this morning.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Trade Balance (1:30 am GMT)
What can we expect from AUD today?
Australia’s trade surplus increased by $824M in June to bring the balance on goods and services up to $11.3B which was higher than May’s figures of $10.5B. Despite the improving trade balance, the Aussie dollar continues to head south, especially after yesterday’s robust ADP NFP print.
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
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi has tumbled nearly 130 pips thus far this week and further weakness can be expected, especially after yesterday’s robust ADP NFP print. This pair could slide lower should US employment data continue to come in strong over the next two days.
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 Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Robust employment figures out of the US continue to keep USDJPY elevated and this currency pair could finally break above 143.50 in a convincing manner today.
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 Bullish
The Euro (EUR)
Key news events today
Composite PMI (8:00 am GMT)
What can we expect from EUR today?
The final reading for the Composite PMI will be released today which should indicate the services sector in the Eurozone expanding once more. However, July’s reading could show services expanding at the slowest rate for 2023. Combined with robust employment figures from the US, the Euro could remain under pressure 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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
CPI (6:30 am GMT)
What can we expect from CHF today?
Both headline and core inflation has been trending lower in Switzerland since February and July’s figures are all but certain to show another decline. Combined with robust employment figures from the US, USDCHF could remain elevated today.
- 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
Composite PMI (8:30 am GMT)
BoE Official Bank Rate Statement (11:00 am GMT)
BoE Gov Bailey Speaks (11:30 am GMT)
What can we expect from GBP today?
All eyes will be on the Bank of England today as they are expected to raise the Official Bank Rate by 25 bps to bring it up to 5.25%. Although inflation in the UK has been declining steadily over the past few months, it still remains historically high with headline CPI coming in at 7.9% YoY in June. This rate increase could provide some lift for the pound during the Europe session.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.5 percentage points to 5.00%.
- Two members preferred to maintain the Bank Rate at 4.50%.
- 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 2.0% 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?
Robust employment figures from the US have caused USDCAD to surge above 1.3300 with ease as it hit 1.3350 overnight. Should US unemployment claims print a ‘soft’ reading, we can expect this currency pair to remain elevated.
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
Strong Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Despite EIA crude inventories registering the largest weekly decline of 17M barrels in history, it was not enough to keep crude oil prices elevated. Robust ADP NFP figures spooked oil markets as a resilient labour market in the US raises the prospects of further rate hikes by the Federal Reserve which is likely to slow down overall economic activity and put a lid on oil prices. WTI oil slumped under the $79 per barrel region and is likely to remain depressed today.
Next 24 Hours Bias
Medium Bearish
