IC Markets Asia Fundamental Forecast | 14 September 2023
What happened in the US session?
It was a pretty volatile period when US CPI data for the month of August was released overnight. Headline CPI printed at 3.7% YoY which was higher than the forecast of 3.6% and of course higher than the previous month’s reading of 3.2%. Meanwhile, core CPI remained unchanged at 4.3% YoY but the monthly reading increased from 0.2% to 0.3% – this was the first acceleration in six months. As a whole, consumer inflation appears to be resurging in the last couple of months and could raise concerns for the Federal Reserve. The dollar index (DXY) swung wildly between 104.55 and 104.95 when the data was released but it then proceeded to consolidate around 104.70.
What does it mean for the Asia Session?
The DXY has ranged between 104.40 and 105.00 this week thus far. As Asian traders digest the latest CPI data from the US, the DXY is likely to trade within this range today. Following a decline of 14.6k in July, the Australian labour market is anticipated to add nearly 26k jobs for the month of August while the unemployment rate is expected to remain unchanged at 3.7%. A much stronger than anticipated labour force report could provide a boost for the Aussie.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
Retail Sales (12:30 pm GMT)
What can we expect from DXY today?
US PPI, which measures inflation in the wholesale sector, rose to 0.8% YoY in July from 0.2% from the previous month. With the forecast for August pointing to another increase, inflationary pressures also appear to be returning to the forefront for this sector. After yesterday’s ‘hot’ CPI print, this should most certainly cause the Federal Reserve to maintain its hawkish monetary policy stance and perhaps even increase interest rates once more at next week’s FOMC meeting. A hotter than expected PPI reading is more than likely to function as yet another bullish catalyst for the DXY.
In addition, employment claims will also be released today. Over the past three weeks, claims have been coming in much lower than their forecasts and another below par reading is more than likely to fuel demand for the US dollar.
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
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
US PPI, which measures inflation in the wholesale sector, rose to 0.8% YoY in July from 0.2% from the previous month. With the forecast for August pointing to another increase, inflationary pressures also appear to be returning to the forefront for this sector. After yesterday’s hot CPI print, this should most certainly cause the Federal Reserve to maintain its hawkish monetary policy stance and perhaps even increase interest rates once more at next week’s FOMC meeting. A hotter than expected PPI reading is more than likely to function as yet another bullish catalyst for the DXY and thus drive gold prices lower.
In addition, employment claims will also be released today. Over the past three weeks, claims have been coming in much lower than their forecasts and another below par reading is more than likely to add further downward pressure for this precious metal.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (1:30 am GMT)
What can we expect from AUD today?
Following a decline of 14.6k in July, the Australian labour market is anticipated to add nearly 26k jobs for the month of August while the unemployment rate is expected to remain unchanged at 3.7%. A much stronger than anticipated labour force report could provide a boost for the Aussie.
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
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi fell as low as 0.5880 overnight before recovering all the initial losses to climb as high as 0.5945 this morning. With no economic news for New Zealand, the Kiwi is likely to trade in tandem with the Australian dollar 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?
As soon as the US CPI data hit the news wires overnight, currency markets experienced high volatility but this was short-lived as USD/JPY swung wildly between 147.10 and 147.80 before consolidating around 147.40. Despite a ‘hot’ CPI reading, the demand for the US dollar was not sustained with USD/JPY remaining above the 147-level 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 Bullish
The Euro (EUR)
Key news events today
ECB Main Refinancing Rate (12:15 pm GMT)
ECB Press Conference (12:45 pm GMT)
What can we expect from EUR today?
The ECB is widely expected to hold the main refinancing rate steady at 4.25% as consumer inflation as a whole has been retreating quite steadily in the Eurozone over the past nine months. The recent decline in inflation could provide the ECB with sufficient justification to ‘pause’ at today’s meeting. Traders will also be paying close attention to ECB President Christine Lagarde’s press conference as she will provide further insight into future monetary policy actions by the European central bank. The Euro dropped as low as 1.0710 overnight and could slide lower during the ECB press conference.
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
PPI (6:30 am GMT)
What can we expect from CHF today?
Swiss PPI, which measures inflation in the wholesale sector, fell 0.6% YoY in July marking the third consecutive month of decline – inflation for this sector has retreated quite significantly over the past ten months. Following the CPI release yesterday, USD/CHF jumped as high as 0.8950. This currency pair is now trading around 0.8920 this morning 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
No major news events.
What can we expect from GBP today?
The Pound initially dived as low 1.2435 in the aftermath of US CPI data but then recovered the losses to climb as high as 1.2510. It is now drifting lower as Asia markets come online.
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?
Following the volatility in currency markets yesterday, USD/CAD jumped as high as 1.3585 before tumbling under 1.3550. As Asian traders digest the latest CPI figures from the US, this currency pair is edging higher this morning.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- 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 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
In similar vein to the API stockpiles, EIA crude oil Inventories unexpectedly increased by 4M barrels versus the estimate of a 2.2M drawdown. This was the first increase in stock levels for both API and EIA in five weeks. Despite inventory levels increasing this week which signal lower crude demand in the US, prices for this commodity remain elevated with WTI oil trading above $88 per barrel. For now, the prospect of a supply shortfall led by Saudi Arabia and Russia’s voluntary production cuts have buoyed crude prices thus far.
Next 24 Hours Bias
Weak Bullish
