IC Markets Asia Fundamental Forecast | 1 August 2023
What happened in the US session?
The Chicago PMI contracted for the 11th consecutive month as both manufacturing and services activities remained in the doldrums, signalling economic weakness in this region. The flash CPI for the Eurozone highlighted the stickiness of the core reading once more with a print of 5.5% YoY while the headline figure edged lower to 5.3% YoY. As a whole, inflation in the EU is proving to be more stubborn than in most other developed economies. After hitting a low of 101.55, the dollar index (DXY) bounced strongly towards 101.90 overnight.
What does it mean for the Asia Session?
The Reserve Bank of Australia (RBA) are expected to raise their cash rate by 25 bps to bring it up to 4.35% this morning. However, RBA Governor Philip Lowe may hold rates steady as inflation has been trending lower over the last few months. It appears that the RBA does have some legroom to hold rates steady at this meeting and if they do so, this would be the third time that they have acted as such in 2023.
The Dollar Index (DXY)
Key news events today
ISM Manufacturing PMI (2:00 pm GMT)
JOLTS Job Openings (2:00 pm GMT)
What can we expect from DXY today?
The ISM Manufacturing PMI has been contracting for the past eight months and July’s reading will be no different. Meanwhile, job openings in the US have been trending lower since December 2022 which is to be expected at this stage of the economic cycle. Should the JOLTS data print a stronger than expected figure, this could function as a potential catalyst for the greenback.
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% 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
JOLTS Job Openings (2:00 pm GMT)
What can we expect from Gold today?
Job openings in the US have been trending lower since December 2022, something that is to be expected at this stage of the economic cycle. Should the JOLTS data print a stronger than expected figure, this could act as a potential catalyst for the greenback and add pressure on gold. Spot prices hit a high of $1,972/oz overnight but have pulled back quite sharply this morning.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Statement (4:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) are expected to raise their cash rate by 25 bps to bring it up to 4.35% this morning. However, RBA Governor Philip Lowe may hold rates steady as inflation has been trending lower over the last couple of months. It appears that the RBA does have some legroom to hold rates steady at this meeting and if they do so, this would be the third time that they have acted as such in 2023.
Central Bank Notes:
- The RBA did not raise the cash rate and kept the target at 4.10%.
- Inflation in Australia has passed its peak but remains high at 7% and needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 1 August 2023.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
Labour Force Report (10:45 pm GMT)
What can we expect from NZD today?
The latest labour force report in New Zealand will be released towards the end of today. The unemployment rate is expected to tick higher to 3.5% while a small gain is forecasted for employment gains. However, higher wage cost inflation is at its highest level since 1992 and another strong reading could lift the Kiwi later tonight.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment.
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%.
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment.
- Next meeting is on 16 August 2023.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
Unemployment Rate (11:30 pm GMT 31st July)
What can we expect from JPY today?
The unemployment rate fell slightly to 2.5% in June from 2.6% in the prior month while the Bank of Japan announced an unscheduled bond-purchase operation to tame rates after adjusting its yield curve control (YCC) policy as recently as last Friday. This unexpected announcement caused USDJPY to easily break above 142.50 and a push towards 143.00 can not be ruled out today.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%.
- 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
Strong Bullish
The Euro (EUR)
Key news events today
Manufacturing PMI (9:00 am GMT)
Unemployment Rate (9:00 am GMT)
What can we expect from EUR today?
As usual, manufacturing activity in the Eurozone is forecasted to contract in July marking a full year of deep contraction for this sector while the unemployment rate could remain unchanged at 6.5%. After touching 1.1040 overnight, the Euro retreated quite strongly from this level and is currently trading around 1.0990.
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
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 returning to markets overnight, USDCHF rose strongly to break above 0.8700 and is heading towards 0.8730 this morning.
- 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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Manufacturing PMI (8:30 am GMT)
What can we expect from GBP today?
Just like its European counterparts, manufacturing activity in the UK has also been depressed and July’s reading will be no different. The pound is falling towards 1.2800 this morning as demand for the US dollar picked up overnight.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain the Bank Rate at 4.5%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
- Next meeting on 3 August 2023.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
Manufacturing PMI (1:30 pm GMT)
What can we expect from CAD today?
Manufacturing activity is likely to contract for the third consecutive month in Canada while the recent combination of high crude oil prices and a weak greenback caused USDCAD to fall as low as 1.3150. However, the sell-off in the US dollar was short-lived and this currency pair rebounded strongly overnight to climb above 1.3200.
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% in the summer, but concerns have increased about inflation staying above the 2% 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?
After a surprise increase in API stockpiles last week, the current forecast indicates further gains in inventory levels as 1.3M barrels are expected to be added. Crude prices hit $81.70 per barrel overnight but the stronger US dollar is putting pressure on prices this morning. Another higher than expected increase in API stocks could accelerate this pullback in prices later today.
Next 24 Hours Bias
Weak Bullish
