IC Markets Asia Fundamental Forecast | 4 September 2023
What happened in the US session?
Non-farm Payrolls (NFPs) for the month of August grew by 187k versus the estimate of 169k while the unemployment rate increased to 3.8% from 3.5% in the previous month. In addition, July’s were also revised lower to 157k from 187k. August’s employment report was mixed with a higher unemployment rate and July’s figures revised lower by a relatively large margin – both these data points should have functioned as a negative catalyst for the dollar index (DXY). However, markets focused on the stronger than expected NFPs causing the DXY to rally strongly to hit 104.30
What does it mean for the Asia Session?
The DXY opened early this morning to drift lower towards the 104.10 region. With no major economic data events on the calendar and with US markets also closed for Labor Day, it could be a relatively subdued trading day to kick off the new week.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
US stock and bond markets are closed for Labor Day and lower trading volume can be expected for most securities today. The DXY drifted lower towards 104.30 at the open early this morning.
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 Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold was extremely volatile during the release of Friday’s NFPs with prices surged as high as $1,952/oz and swiftly reversing to tumble as low as $1,935/oz. With demand for the US dollar looking week thus far, spot prices are climbing towards the $1,950/oz region.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie dollar dived as low as 0.6440 in the aftermath of the NFP release last Friday but has reversed off this level as the new trading week began.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Similarly to its Pacific neighbour, the Kiwi crashed under 0.5940 following the release of the NFP report last Friday. With demand for the US dollar looking weak thus far, the Kiwi is rising strongly this morning.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 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?
After last Friday’s NFP release, USD/JPY surged as high as 146.30 but with demand for the US dollar waning thus far, this currency pair could slide lower towards 146.00.
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 Bearish
The Euro (EUR)
Key news events today
German Trade Balance (6:00 am GMT)
What can we expect from EUR today?
Germany’s trade balance widened to €18.7B in June following an upward revision of €14.6B in May. June’s figures was the largest surplus since January of 2021 and another stronger than expected number could boost the Euro.
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
GDP (7:00 am GMT)
What can we expect from CHF today?
Swiss GDP grew 0.3% YoY in the first quarter of 2023 following a stall in the last quarter of 2022. Forecast for the second quarter points to a meagre growth of just 0.1%. A surprise increase in today’s GDP figures could act as a bearish catalyst for USD/CHF.
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Following the NFP data release, the Pound nosedived to hit 1.2580 before finding support around 1.2590. With demand for the US dollar waning thus far, the Pound is climbing higher this morning.
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?
Following the NFP data release, UDS/CAD surged as high as 1.3610 last Friday. With demand for the US dollar looking weak thus far, this currency pair is retreating away from 1.3600 and could slide lower 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 3.0% 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 Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude prices bucked a two-week losing streak to finish strongly in the green with WTI oil closing at $85.55 per barrel last Friday. With Saudi Arabia and Russia looking to extend their production cuts in the coming months along with the other OPEC+ members, crude prices could remain buoyed for another week.
Next 24 Hours Bias
Weak Bullish
