IC Markets Asia Fundamental Forecast | 12 July 2023
What happened in the US session?
The NFIB Small Business Index rose to 91.0 in June, coming in higher than the estimate of 89.9 and the previous month’s reading of 89.4. Some key highlights include firms anticipating lower job creation while the percentage of businesses planning on raising prices hit its lowest level since March 2021. Both of which suggest that inflationary pressures are slowly dissipating from this group. The dollar index (DXY) climbed to 101.95 by mid-day US before reversing to fall to 101.67 by the end of the US session.
What does it mean for the Asia Session?
As Asia markets opened on Wednesday, DXY tumbled sharply falling towards 101.40 – this marks the fifth consecutive day of decline. Dollar weakness is clearly evident and DXY could fall towards the key support level of 101.00 as the day progresses.
The Dollar Index (DXY)
Key news events today
CPI (12:30 pm GMT)
What can we expect from DXY today?
One of the most closely watched economic events out of the US this week will be the CPI readings for the month of June. While headline CPI has been retreating sharply, the same cannot be said for the core reading. However, an overall ‘soft’ reading is likely to accelerate the sell-off in the US dollar once more.
Central Bank Notes:
- The federal funds rate target range will be 5 to 5-1/4 per cent.
- 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 is on 26 July 2023
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
CPI (12:30 pm GMT)
What can we expect from Gold today?
One of the most closely watched economic events out of the US this week will be the CPI readings for the month of June. While headline CPI has been retreating sharply, the same cannot be said for the core reading. However, an overall ‘soft’ reading is likely to spur demand for gold with spot prices currently rising strongly towards $1,940/oz this morning.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
RBA Gov Lowe Speaks (3:10 am GMT)
What can we expect from AUD today?
RBA Governor Philip Lowe will be delivering a speech entitled “The Reserve Bank Review and Monetary Policy” at the Economic Society of Australia Business Lunch, in Brisbane. Any hawkish remarks and/outlook with regards to monetary policy actions could provide additional lift to the Aussie.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Official Cash Rate Statement (2:00 am GMT)
What can we expect from NZD today?
The RBNZ will be making its official cash rate announcement and releasing its statement today, where they are widely expected to keep rates on hold at 5.5%. With US dollar weakness persisting, the Kiwi could continue to rise despite a pause by the RBNZ.
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 12 July 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?
US equity markets made relatively strong gains and the VIX dropped below 15 overnight to mark a potential resumption of risk-on sentiment in markets. However, the strong sell-off in the US dollar is causing USDJPY to dive further as this pair broke under 140.00 during the US session.
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%.
- 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 27 July 2023
Next 24 Hours Bias
Strong Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
With no key news events taking place in the Eurozone today, all eyes will be on the upcoming CPI data from the US – expect this data point to act as the main catalyst for currency markets later 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 on 27 July 2023
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc continues to strengthen against the US dollar as USDCHF broke under 0.8800 – further downside pressures can be expected for this pair but there could be minor pullbacks along the way.
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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
BoE Gov Bailey Speaks (8:00 am GMT)
What can we expect from GBP today?
Bank of England Governor Andrew Bailey will be holding a press conference on the Financial Stability Report in London, where any hawkish commentary could act as additional catalyst for the rise in the pound – the pound is currently trading above 1.2950.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
BoC Overnight Rate Statement (2:00 pm GMT)
BoC Monetary Policy Report (2:00 pm GMT)
BoC Press Conference (3:00 pm GMT)
What can we expect from CAD today?
The Bank of Canada is widely expected to raise the overnight rate by 25 bps to bring it up to 5.00% – their overnight rate announcement and press conference follows the release of the US CPI data at 12:30 pm GMT. Thus, expect high volatility for the Loonie during the US session.
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 12 July 2023
Next 24 Hours Bias
Strong Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API weekly crude oil stockpile increased by just over 3 million barrels versus the estimate of only 200k – this marked the first rise in inventory levels in four weeks and by a wide margin too. However, crude prices are rising strongly as markets anticipate additional stimulus spending from China to boost its ailing economy. WTI crude prices are making a push towards the $75.00 per barrel this morning.
Next 24 Hours Bias
Medium Bullish
