IC Markets Asia Fundamental Forecast | 6 September 2023
What happened in the US session?
Despite Federal Reserve Governor Christopher Waller indicating his support for a pause in rate hikes at the September FOMC meeting in an interview with CNBC, the dollar index (DXY) and US treasury bond yields climbed higher touching 104.90 and 4.30% respectively overnight.
What does it mean for the Asia Session?
The DXY is now in its eight consecutive week of strong gains and is likely to continue its ascent. Meanwhile, Australia’s GDP figures for the second quarter of 2023 will be released this morning with market expectations of a 0.4% YoY growth. The Australian economy grew 0.2% YoY in the first quarter which marked the sixth consecutive period of growth but it was the softest pace in this period. The Aussie dollar trades around 0.6370 this morning and a miss in GDP figures could add further downward pressure.
The Dollar Index (DXY)
Key news events today
ISM Services PMI (2:00 pm GMT)
What can we expect from DXY today?
ISM Services PMI have been expanding for the past seven months and August’s estimate of 52.5 points to another month of growth, albeit at a slightly slower rate. Price pressures increased in the month of July and another stronger than expected reading for this category could function as a bullish 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
Medium Bullish
Gold (XAU)
Key news events today
ISM Services PMI (2:00 pm GMT)
What can we expect from Gold today?
ISM Services PMI have been expanding for the past seven months and August’s estimate of 52.5 points to another month of growth, albeit at a slightly slower rate. Price pressures increased in the month of July and another stronger than expected reading for this category could function as a bullish catalyst for the DXY and thus have a negative impact on gold prices.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
GDP (1:30 am GMT)
What can we expect from AUD today?
Australia’s GDP figures for the second quarter of 2023 will be released this morning with market expectations of a 0.4% YoY growth. The Australian economy grew 0.2% YoY in the first quarter which marked the sixth consecutive period of growth but it was the softest pace in this period. The Aussie dollar trades around 0.6370 this morning and a miss in GDP figures could add further downward pressure.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third 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 3 October 2023.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
For the second day in a row the Kiwi is one of the weakest performing currencies this morning as it slides towards 0.5860. Further down pressures could be expected for this currency today.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With demand for the US dollar remaining strong thus far, USD/JPY hit 147.80 overnight but this currency pair is pulling back this morning.
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
Retail Sales (9:00 am GMT)
What can we expect from EUR today?
Monthly retail sales in the Eurozone have been mixed in 2023 as three of the past six readings have shown sales falling. July’s estimate points to a second consecutive month of decline – a weaker than expected reading could cause the Euro to weaken further.
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
No major news events.
What can we expect from CHF today?
With demand for the US dollar remaining strong thus far, USD/CHF hit 0.8900 overnight and could remain elevated as the day progresses.
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 Bullish
The Pound (GBP)
Key news events today
BoE Monetary Policy Report Hearings (1:15 pm GMT)
What can we expect from GBP today?
Bank of England Governor Andrew Bailey and several MPC members will testify on inflation and the economic outlook before Parliament’s Treasury Committee during today’s hearings. A hawkish outlook by Governor Bailey and his fellow MPC members could provide some lift for the Pound during this hearing.
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
BoC Overnight Rate Statement (2:00 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) is expected to keep its overnight rate on hold at 5.00% at today’s monetary policy meeting following two consecutive hikes of 25 bps each. Although inflation edged higher in July – rising to 3.3% YoY from 2.8% YoY in June – the BoC could still adopt a ‘wait-and-see’ approach as they assess the impact of higher interest rates on the economy and labour market.
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
Medium Bullish
Oil
Key news events today
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Crude prices spiked overnight as a surprise announcement by Saudi Arabia along with Russia to extend their respective production cuts until this December worried traders about potential shortages during peak winter demand. WTI oil hit $87.50 per barrel before pulling back slightly this morning. Another larger than expected drawdown in API stockpiles later today could act as an additional bullish catalyst for this commodity.
Next 24 Hours Bias
Medium Bullish
