IC Markets Asia Fundamental Forecast | 15 September 2023
What happened in the US session?
The ECB increased their main refinancing rate by 25 bps to bring it up to 4.50% as the statement showed that inflation in the Eurozone is still too strong but economic activity has become weaker – a pause in rates could most likely occur at the next monetary policy meeting. During her press conference, ECB President Christine Lagarde reiterated their goal to return inflation to the 2% target in a timely manner while maintaining that their efforts against inflation are making progress.
The Euro nosedived 80 pips over a 30-minute period where the ECB statement was released along with President Lagarde’s press conference. Although interest rates were increased, markets have priced in the fact that this was indeed the final rate hike by the ECB.
Meanwhile, US PPI, which measures wholesale inflation, jumped higher for the month of August as the headline reading increased 0.7% MoM and 1.6% YoY – both much higher than the respective forecast as well as the previous month’s reading. Higher energy costs over the last few months are the main culprit for this increase in the latest round of PPI readings.
In addition, unemployment claims printed lower than the estimate for the fourth consecutive week to signal a resilient labour market in the US – both of these data points from the US functioned as a bullish catalyst for the dollar index (DXY) and it surged as high as 105.43 overnight.
What does it mean for the Asia Session?
After the combination of a ‘final rate hike’ by the ECB and robust economic data out of the US, demand for the greenback has returned with a bang and we are likely to see the DXY edge higher today.
The Dollar Index (DXY)
Key news events today
Empire State Manufacturing Index (12:30 pm GMT)
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from DXY today?
The Empire State Manufacturing Index showed business activity declining while increases in input and selling prices picked up in the state of New York for the month of August. The forecast for September points to another month of decline in manufacturing activity but at a slower rate.
Meanwhile, the preliminary findings of the Consumer Sentiment survey by the University of Michigan will be released today. While sentiment has improved markedly over the last two months, consumers remain tentative about the future outlook for the American economy. A surprise increase in inflation expectations from this preliminary survey along with higher cost pressures in the Empire State index could trigger another round of demand for the US dollar today.
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
Empire State Manufacturing Index (12:30 pm GMT)
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from Gold today?
The Empire State Manufacturing Index showed business activity declining while increases in input and selling prices picked up in the state of New York for the month of August. The forecast for September points to another month of decline in manufacturing activity but at a slower rate.
Meanwhile, the preliminary findings of the Consumer Sentiment survey by the University of Michigan will be released today. While sentiment has improved markedly over the last two months, consumers remain tentative about the future outlook for the American economy. A surprise increase in inflation expectations from this preliminary survey along with higher cost pressures in the Empire State index could trigger another round of demand for the US dollar and thus drive gold prices lower today.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie dived as low as 0.6420 during the release of the ECB’s monetary policy statement overnight but then consolidated around the 0.6440-level. After initially falling this morning, the Aussie rose strongly to climb as high as 0.6448.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi tumbled as low as 0.5900 overnight before rebounding strongly as it hit a high of 0.5918 this morning. With no news on the calendar, the Kiwi is likely to trade in tandem with the Australian dollar.
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Despite the DXY breaking above 105 with conviction, USD/JPY was rather subdued as compared to the other majors and did not rise much overnight. This currency pair trades around 147.45 but could rise 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
ECB President Lagarde Speaks (9:45 am GMT)
What can we expect from EUR today?
Following yesterday’s press conference regarding monetary policy for the Eurozone, ECB President Christine Lagarde will be holding yet another press conference but at the Eurogroup meeting in Spain today. The Euro tumbled over 100 pips overnight and is likely to remain under pressure today.
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 is on 26 October 2023.
Next 24 Hours Bias
Medium 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 picking up overnight, USD/CHF surged as high as 0.8970 overnight and is likely to remain elevated as the final trading day of the week comes to an end.
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?
With demand for the US dollar picking up overnight, the Pound dived 80 pips overnight to crash below 1.2400 and is likely to remain under pressure today.
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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Although demand for the US dollar picked up overnight, USD/CAD was rather subdued as compared to the other majors and did not rise much overnight. This currency pair trades around 1.3510 but could drift lower as higher crude prices appear to be acting as a bullish catalyst for the Canadian dollar which in turn adds downward pressure on USD/CAD.
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 Bearish
Oil
Key news events today
China Industrial Production (2:00 am GMT)
What can we expect from Oil today?
Industrial production in China increased 3.7% YoY in July but was lower than the forecast of 4.4% due to softer rises in manufacturing activity and mining output. The estimate for August sits at 3.9% YoY, which suggests some improvement for industrial activity and could potentially function as a bullish catalyst for crude prices should the data show a marked improvement.
WTI oil broke above $90.00 per barrel this morning for the first time in ten months and is likely to edge higher as the final trading day of the week comes to a close.
Next 24 Hours Bias
Medium Bullish
