IC Markets Asia Fundamental Forecast | 8 November 2023
What happened in the US session?
Federal Reserve Governor Christopher Waller along with other FOMC members such as Governor Michelle Bowman noted that the US economy “remained strong and despite some signs of slowdown, may have gained speed and could require a higher policy rate”. The dollar index (DXY) hit a high of 105.77 at the start of the US session before pulling back to 105.50 by the end of the session.
What does it mean for the Asia Session?
Inflation expectations in New Zealand increased from 2.79% in the second quarter of 2023 to 2.83% in the third quarter while the annualised inflation rate continues to moderate lower. Another round of weaker-than-expected reading for inflation expectations could function as a bearish catalyst for the Kiwi this morning.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Speaks (2:15 pm GMT)
FOMC Member Barr Speaks (7:00 pm GMT)
FOMC Member Jefferson Speaks (9:45 pm GMT)
What can we expect from DXY today?
Federal Reserve Chair Jerome Powell will be delivering the opening remarks at the Division of Research and Statistics Centennial Conference in Washington DC while Federal Reserve Governors Michael Barr and Philip Jefferson will also be speaking at their respective conferences. They all could follow in the footsteps of Governors Christopher Waller and Michelle Bowman with further ‘hawkish’ rhetoric and potentially keep demand for the greenback strong.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the second meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- Next meeting runs from 12 to 13 December 2023.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Fed Chair Powell Speaks (2:15 pm GMT)
FOMC Member Barr Speaks (7:00 pm GMT)
FOMC Member Jefferson Speaks (9:45 pm GMT)
What can we expect from Gold today?
Federal Reserve Chair Jerome Powell will be delivering the opening remarks at the Division of Research and Statistics Centennial Conference in Washington DC while Federal Reserve Governors Michael Barr and Philip Jefferson will also be speaking at their respective conferences. They all could follow in the footsteps of Governors Christopher Waller and Michelle Bowman with further ‘hawkish’ rhetoric and potentially keep demand for the greenback strong and thus dampen gold prices.
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?
After falling as low as 0.6400 following yesterday’s RBA’s cash rate announcement, the Aussie retraced as high as 0.6438 overnight. Although the RBA increased their cash rate by 25 basis points to 4.35%, the market interpreted their statement as somewhat dovish. This bearish momentum could continue for the Aussie but expect prices to edge higher first before potentially resuming the downturn.
Central Bank Notes:
- The RBA increased the cash rate target by 25 basis points to 4.35%, the first increase in five meetings.
- Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago.
- Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 5 December 2023.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
Inflation Expectations (2:00 am GMT)
What can we expect from NZD today?
Inflation expectations in New Zealand increased from 2.79% in the second quarter of 2023 to 2.83% in the third quarter while the annualised inflation rate continues to moderate lower. Another round of weaker-than-expected reading for inflation expectations could function as a bearish catalyst for the Kiwi 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 agreed that the OCR needs to stay at a restrictive level to ensure that annual consumer price inflation returns to the 1 to 3% target range and to support maximum sustainable employment.
- While supply constraints in the economy continue to ease, inflation remains too high.
- Spending needs to remain subdued to better match the economy’s ability to supply goods and services, so that consumer price inflation returns to its target range.
- Next meeting is on 29 November 2023.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Following ‘hawkish’ rhetoric by FOMC members overnight, USD/JPY hit 150.70 before edging lower to 150.30 by the end of the US session. This currency pair could remain elevated especially if Federal Reserve Chair Jerome Powell continues with further hawkish remarks during his speech later today.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Medium- to long-term inflation expectations have risen moderately. Even as actual inflation decelerates, inflation expectations are expected to rise moderately toward the end of the projection period, with the output gap turning positive and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations. This will likely lead to a sustained rise in prices accompanied by wage increases.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 December 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Retail Sales (10:00 am GMT)
What can we expect from EUR today?
Retail sales in the Eurozone have been weak over the past two months, especially with sales tumbling 1.2% MoM in August. September’s estimate of -0.2% points to a third but relatively shallow consecutive month of decline. Worsening sales figures are likely to impact the Euro negatively.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged.
- Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.
- The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 14 December 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?
Following ‘hawkish’ rhetoric by FOMC members overnight, USD/CHF once again climbed above the 0.900-threshold. This currency pair is likely to remain elevated especially if Federal Reserve Chair Jerome Powell continues with further hawkish remarks during his speech later today.
Central Bank Notes:
- The SNB unexpectedly kept the policy rate unchanged at 1.75% in September.
- Inflation forecasts remain unchanged at 2.2% for both 2023 and 2024 while it was lowered from 2.1% to 1.9% for 2025.
- 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 projection for GDP growth this year remained unchanged at 1.0%.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
BoE Gov Bailey Speaks (9:30 am GMT)
What can we expect from GBP today?
Bank of England (BoE) Governor Andrew Bailey is due to speak at the Central Bank of Ireland Financial System Conference in Dublin where he could provide further insights into the central bank’s outlook on economic growth, inflation and monetary policy in the UK following last week’s monetary policy committee meeting. The Pound hit a low of 1.2265 overnight and looks set to drift lower today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2.
- This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
BoC Summary of Deliberations (6:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) will release its summary of deliberations from the Governing Council’s most recent meeting. The detailed record will provide in-depth insights into the economic conditions that influenced their decision to hold the policy interest rate at 5.0% for the second meeting in a row. USD/CAD hit a high of 1.37832 overnight and is likely to remain elevated today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%, for the second meeting in a row.
- Canada’s economy has weakened with growth forecast for 2023 lowered to 1.2% from 1.8%
- Economic growth is expected to continue to be weak, growing 0.9% and 2.5% in 2024 and 2025 respectively.
- The Bank expects CPI inflation to average around 3.5% through the middle of 2024 before gradually easing to 2.0% in 2025.
- However, the near-term path for CPI is higher because of energy prices and ongoing persistence in core inflation.
- Next meeting is on 6 December 2023.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
EIA Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
Yesterday’s API readings surprised negatively to the upside as nearly 12M barrels of crude were added to stockpiles versus the estimate of a 300k drawdown. Crude oil prices slumped as mixed economic data from China and weaker demand in the US weighed heavily on this commodity. WTI oil tumbled well over 4.5% overnight to trade around $77.00 per barrel, a level last seen in mid-July, and is expected to remain depressed today. A stronger-than-expected drawdown in EIA inventories could provide some lift to crude prices in the short-term, otherwise downward pressures remain.
Next 24 Hours Bias
Strong Bearish
