IC Markets Asia Fundamental Forecast | 10 October 2023
What happened in the US session?
Federal Reserve Governor Philip Jefferson indicated that “rising yields on long-term U.S. Treasury bonds, which directly influence financing costs for households and businesses, could steer the Fed from further increases in its short-term policy rate and substitute the work done by financial markets for formal monetary policy moves by the central bank”. He also added that the rise in US Treasury yields would bring about the need for the Federal Reserve to tread gently with regards to any further increases to the Fed Fund rates.
The remarks by Governor Jefferson caused markets to diminish the likelihood of additional rate hikes by the Fed. The dollar index (DXY) tumbled as low as 106.00 by the end of the US session.
What does it mean for the Asia Session?
The DXY fell towards 105.90 as Asian markets digested the latest remarks by one of the top officials of the Fed before climbing above the 106-threshold. Meanwhile, Australia’s NAB business confidence index edged higher to 2 in August, pointing to the highest level since January but remaining historically low. Sentiment was mixed across industries and fell sharply in mining. The Aussie broke above 0.6400 overnight and could remain elevated this morning.
The Dollar Index (DXY)
Key news events today
FOMC Member Waller Speaks (5:00 pm GMT)
FOMC Member Kashkari Speaks (7:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Governor Christopher Waller and Federal Reserve Bank of Minneapolis President Neel Kashkari are due to speak at their respective events where they could continue with the ‘more neutral’ rhetoric for the US dollar, following in the footsteps of Federal Reserve Governor Philip Jefferson. The DXY could come under pressure once more during the US session.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 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 31 October to 1 November 2023.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
FOMC Member Waller Speaks (5:00 pm GMT)
FOMC Member Kashkari Speaks (7:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Governor Christopher Waller and Federal Reserve Bank of Minneapolis President Neel Kashkari are due to speak at their respective events where they could continue with the ‘more neutral’ rhetoric for the US dollar, following in the footsteps of Federal Reserve Governor Philip Jefferson. The greenback could come under pressure once more during the US session which could provide additional lift for this precious metal during the US session.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
NAB Business Confidence (12:30 am GMT)
What can we expect from AUD today?
Australia’s NAB business confidence index edged higher to 2 in August, pointing to the highest level since January but remaining historically low. Sentiment was mixed across industries and fell sharply in mining. The Aussie broke above 0.6400 following Federal Reserve Governor Philip Jefferson’s remarks overnight and could remain elevated this morning.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the fourth consecutive meeting.
- Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.
- Some further tightening of monetary policy may be necessary.
- Next meeting is on 7 November 2023.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Along with the Aussie, the Kiwi is one of the strongest performing currencies this morning as it convincingly broke above the 0.6000-threshold overnight – it is likely to remain elevated today.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Federal Reserve Governor Philip Jefferson’s overnight remarks caused USD/JPY to fall as low as 148.15 but this currency pair found support around the 140.40-level as Asian markets came online and could retrace higher 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% and -0.5% from the target level.
- Inflation expectations have shown some upward movements against medium- to long-term inflation expectations and wage growth rise, accompanied by changes in factors such as firms’ wage- and price-setting behaviour.
- Japan’s economy is likely to continue recovering moderately for the time being.
- Next meeting is on 31 October 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (Tentative)
What can we expect from EUR today?
ECB President Christine Lagarde is due to participate in a panel discussion titled “Facing the great systemic shocks” at the World Bank Group and the International Monetary Fund Annual Meeting in Morocco. Although the topic is not focused on monetary policy for the Eurozone, any potential comments on policy actions by the ECB could impact the Euro. It broke above 1.0550 overnight and is likely to remain elevated 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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Federal Reserve Governor Philip Jefferson’s overnight remarks caused USD/CHF to tumble under the 0.9100-threshold USD/CHF and continued to slide lower this morning. The Swiss franc has strengthened considerably since last Tuesday and is likely to make further gains, causing USD/CHF to remain under pressure.
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
Medium Bearish
The Pound (GBP)
Key news events today
FPC Meeting Minutes (9:30 am GMT)
What can we expect from GBP today?
The minutes for the Bank of England’s (BoE) Financial Policy Committee’s most recent meeting will be released today. The minutes will provide in-depth insights into the financial conditions, powers for direction on capital requirements and decisions towards financial stability. This is likely to have an impact on the direction for the Pound – which climbed above the 1.2200-threshold overnight.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to maintain its Official Bank Rate at 5.25%.
- Four members preferred to increase the Bank Rate by 0.25 percentage points, to 5.5%.
- CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term.
- The mean projection for CPI inflation remained unchanged and is expected to decline to 2.0% and 1.9% at the two and three-year horizons, respectively.
- Next meeting is on 2 November 2023.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The combination of higher crude oil prices and Federal Reserve Governor Philip Jefferson’s overnight remarks drove USD/CAD under the 1.3600-threshold. This currency pair continues to slide lower as Asian markets came online and is likely to remain under heavy pressure today.
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 meeting is on 25 October 2023.
Next 24 Hours Bias
Strong Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices spiked on Monday as geo-political risks in the Middle East escalated over the weekend. WTI oil touched the $86 per barrel mark before pulling back yesterday. It managed to remain above $84.00 and has now climbed above $85 this morning – crude prices are expected to remain elevated today as well.
Next 24 Hours Bias
Medium Bullish
