IC Markets Asia Fundamental Forecast | 16 August 2023
What happened in the US session?
Retail sales grew for the fourth consecutive month with July’s sales registering $696.4B, growing 0.7% MoM versus the estimate of 0.4%. This was the second’s highest monthly gain in 2023 after January’s high of 2.8%. Meanwhile, the Empire State Manufacturing Index fell 20 points to -19 as new orders and shipments declined significantly in addition to input and selling prices increasing in the state of New York. Despite stronger retail sales, the dollar index (DXY) was relatively unchanged overnight.
What does it mean for the Asia Session?
The Reserve bank of New Zealand will be releasing its monetary policy statement this morning where they are likely to keep their official cash rate unchanged at 5.5% for the third meeting in a row. With global growth looking weak and domestic inflation continuing to decline, this latest ‘pause’ by RBNZ could add further downward pressure on the Kiwi.
The Dollar Index (DXY)
Key news events today
FOMC Meeting Minutes (6:00 pm GMT)
What can we expect from DXY today?
The minutes from July’s FOMC meeting will be released today which will provide further insight into the policy action and rate hike projections by Chairman Jerome Powell and his fellow committee members. These minutes are likely to have an impact on the demand for the US dollar and could potentially drive the DXY higher.
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 Bearish
Gold (XAU)
Key news events today
FOMC Meeting Minutes (6:00 pm GMT)
What can we expect from Gold today?
The minutes from July’s FOMC meeting will be released today which will provide further insight into the policy action and rate hike projections by Chairman Jerome Powell and his fellow committee members. These minutes are likely to have an impact on the demand for the US dollar and could potentially drive the DXY higher – putting further downward pressure on gold prices.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
MI Leading Index (12:30 am GMT)
What can we expect from AUD today?
The Melbourne Institute Leading Index moved slightly higher to -0.6% in July from -0.67% in June as it points to more weakness ahead. Sharp falls in commodity prices have also significantly impacted this index. The Aussie tumbled to a low of 0.6430 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 Bearish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Monetary Policy Statement (2:00 am GMT)
RBNZ Press Conference (3:00 am GMT)
What can we expect from NZD today?
The Reserve Bank of New Zealand will be releasing its monetary policy statement this morning where they are likely to keep their official cash rate unchanged at 5.5% for the third meeting in a row. With global growth looking weak and domestic inflation continuing to decline, this latest ‘pause’ by RBNZ could add further downward pressure on the Kiwi.
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
Weak Bearish
The Japanese Yen (JPY)
Key news events today
Trade Balance (11:50 pm GMT)
What can we expect from JPY today?
Japan’s trade deficit has been reducing steadily over the past five months with June’s balance unexpectedly shifting to a surplus of 43B yen – it was the first trade surplus in nearly two years. With Japanese GDP growing stronger than expected earlier this week, there could be another surprise trade surplus for the month of July.
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
GDP (9:00 am GMT)
Industrial Production (9:00 am GMT)
What can we expect from EUR today?
Flash GDP figures for the second quarter of 2023 will be released for the Eurozone with an estimate of 0.6% YoY while industrial production for the month of June is likely to show a decline of 0.1% MoM. The Euro tumbled to a low of 1.0900 overnight but has found support around this level this morning.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Despite the stronger US dollar over the past few weeks, the Swiss franc has shown resilience which has capped the gain on USDCHF at 0.8780. This currency pair could slide lower today.
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
Weak Bearish
The Pound (GBP)
Key news events today
CPI (6:00 am GMT)
What can we expect from GBP today?
Inflation in the UK is expected to decline for both the headline and core CPI. Headline is estimated to fall to 6.7% YoY in July compared to June’s reading of 7.9% YoY while the core is only expected to experience a very minute drop to 6.8% YoY from 6.9% YoY. ‘Softer’ than expected inflation figures are likely to put pressure on the Pound.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The annual inflation rate (CPI) in Canada rose to 3.3% in July 2023 from 2.8% in the previous month, which was also above the market estimate of 3%, causing USDCAD to drop as low as 1.3445 overnight before rebounding up to 1.3500 this morning. With crude oil prices coming under pressure, USDCAD could remain elevated today.
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
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Despite API stockpile levels falling by 6.2M barrels versus the forecast of a 2.1M drawdown which suggests stronger demand in the US, crude oil prices tumbled below the $81 per barrel level as concerns over the worsening economic conditions in China offset the large inventory draw. The EIA crude oil inventories are forecasting a drawdown of 2.1M barrels and another stronger than expected drawdown is not likely to support crude prices later today.
Next 24 Hours Bias
Medium Bearish
