IC Markets Asia Fundamental Forecast | 7 August 2023
What happened in the US session?
Last Friday’s non-farm payrolls (NFPs) in the US were slightly disappointing as 187k jobs were added to the economy in July versus the forecast of 205k. The sectors that experienced the most job gains were healthcare, social assistance, financial activities and wholesale trade while the unemployment rate edged lower from 3.7% to 3.6% – this rate has ranged from 3.4% to 3.7% since March 2022.
Although NFPs were slightly higher than June’s figures of 185k, traders inferred the data as bearish for the US dollar, causing the dollar index (DXY) to fall from 102.60 to as low as 101.75 on the 4th of August.
What does it mean for the Asia Session?
The DXY opened at 102 early this morning and is rising as Asian markets come online. We could see it retrace higher during the initial part of the day before the downtrend resumes.
The Dollar Index (DXY)
Key news events today
FOMC Member Harker Speaks (12:15 pm GMT)
FOMC Member Bowman Speaks (12:30 pm GMT)
What can we expect from DXY today?
There will be two FOMC members delivering their respective speeches today with Federal Reserve Bank of Philadelphia President Patrick Harker due to speak on the economic outlook at an event hosted by Philadelphia Business Journal while Federal Reserve Governor Michelle Bowman will be attending a virtual Fed Listens event hosted by the Federal Reserve Bank of Atlanta.
Although last Friday’s NFPs were weaker than the forecast, hawkish rhetoric from these two FOMC members cannot be ruled out later today. This could function as a positive catalyst for the DXY.
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
Weak Bullish
Gold (XAU)
Key news events today
FOMC Member Harker Speaks (12:15 pm GMT)
FOMC Member Bowman Speaks (12:30 pm GMT)
What can we expect from Gold today?
There will be two FOMC members delivering their respective speeches today with Federal Reserve Bank of Philadelphia President Patrick Harker due to speak on the economic outlook at an event hosted by Philadelphia Business Journal while Federal Reserve Governor Michelle Bowman will be attending a virtual Fed Listens event hosted by the Federal Reserve Bank of Atlanta.
Although last Friday’s NFPs were weaker than the forecast, hawkish rhetoric from these two FOMC members cannot be ruled out later today. This could function as a positive catalyst for the DXY which would be bearish for gold.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
ANZ Job Advertisements (1:30 am GMT)
What can we expect from AUD today?
The ANZ Job Advertisements showed job listings increased by 0.4% MoM in July following a downward revision in June to -2.7% from -2.5%. This small rise suggests that it is likely to be a blip as advertisements have fallen 2.1% over the past three months. However, with the US dollar selling off last Friday, this has lifted the Aussie dollar as it trades around 0.6580 this morning.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The sell-off in the US dollar following weaker-than-expected NFPs lifted the Kiwi dollar as high as 0.6130 last Friday. This currency pair pulled back sharply by the end of the US session but it opened strongly 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 Bullish
The Japanese Yen (JPY)
Key news events today
Household Spending (11:30 pm GMT)
What can we expect from JPY today?
Household spending has been falling on an annualized basis for the past three months and July’s forecast also points towards another decline. Another ‘soft’ reading could push USDJPY slightly higher 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
Weak Bullish
The Euro (EUR)
Key news events today
Sentix Investor Confidence (8:30 am GMT)
What can we expect from EUR today?
The Sentix Investor Confidence has fallen quite sharply over the last couple of months as concerns about the further development of the global economy have probably not diminished. The overall index for the Eurozone has fallen to its lowest level since November 2022 and the values for Germany, the most important economy in the Eurozone, can only be described as “dramatically bad”. The latest forecast shows this index decreasing further to -24.3 from last month’s reading of -22.5.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
Unemployment Rate (5:45 am GMT)
What can we expect from CHF today?
The unemployment rate in Switzerland remained unchanged at 2.0% over the past two months and the latest estimate shows no difference. This currency pair gapped lower early this morning but has rebounded strongly to climb as high as 0.8750.
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 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
MPC Member Pill Speaks (4:00 pm GMT)
What can we expect from GBP today?
Bank of England Chief Economist Huw Pill will be delivering the Monetary Policy Report at a virtual event hosted by the Bank of England where he could shed further light on the outlook for monetary policy after last week’s interest rate hike to bring the Official Bank Rate up to 5.25%.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Canada’s NFPs posted a decline of 6.4k jobs versus the forecast of an increase of 24.6k jobs while the unemployment rate edged slightly higher from 5.4% to 5.5%. Both these factors should have acted as a bearish catalyst for the Canadian dollar but the US NFPs had a greater impact on USDCAD as this pair tumbled as low as 1.3320 last Friday. However, it bounced strongly towards the end of the US session and it once again rebounded strongly after gapping lower early 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 3.0% 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
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices remain elevated as WTI oil gapped slightly higher at $82.40 per barrel this morning to rise as high as $82.88 before reversing in an attempt to close this gap. With major producers such as Saudi Arabia and Russia extending their recent supply cuts, crude prices are sticking to their highest levels in nearly four months following sixth straight weeks of gains, buoyed by hopes that tightening supplies will offset a potential slowdown in demand this year.
In addition, expectations of more stimulus measures by China also aided sentiment, although economic data continues to paint a bleak picture for the Asian giant.
Next 24 Hours Bias
Medium Bullish
