IC Markets Asia Fundamental Forecast | 14 August 2023
What happened in the US session?
Last Friday, headline and core PPI readings in the US both printed higher than their respective estimates, with headline PPI increasing from 0.2% to 0.8% YoY in July. Meanwhile inflation expectations from the University of Michigan’s preliminary Consumer Sentiment survey for August came in at 3.3% versus the estimate of 3.8%, which was also lower than July’s reading of 3.4%.
Although inflation expectations were relatively ‘soft’, the fact that headline CPI also increased from 3.0% to 3.2% YoY on the 10th of August started to raise concerns that inflation could be creeping back into the US economy. With both headline CPI and PPI rising in July, demand for the greenback increased as the dollar index (DXY) closed at 102.85 to register a fourth consecutive week of gains.
What does it mean for the Asia Session?
The DXY has started the new week in the same fashion as bullish momentum pushed it within a whisker of 103 early this morning. With no notable events for all three sessions today, the demand for the US dollar – fuelled by concerns on a potential resurgence in US inflation – is likely to remain strong and could keep the DXY elevated.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The DXY has started the new week in the same fashion as bullish momentum pushed it within a whisker of 103 early this morning. With no notable events for all three sessions today, the demand for the US dollar – fuelled by concerns on a potential resurgence in US inflation – is likely to remain strong and could keep the DXY elevated.
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
No major news events.
What can we expect from Gold today?
The strength of the US dollar drove gold prices down to close in the red for the third consecutive week. With demand for the greenback spilling over at the open, this precious metal fell to a low of $1,910/oz early this morning and is likely to remain under pressure today.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie dollar broke below 0.6500 convincingly early this morning and further downward pressures are likely to weigh on it as the day progresses.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second 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 5 September 2023.
Next 24 Hours Bias
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Just like its Pacific neighbour, the strength of the US dollar drove the Kiwi below 0.6000 last Friday and this currency pair continued its free-fall early this morning.
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
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Demand for the greenback has caused USDJPY to come within a whisker of the 145-level last Friday. With the bullish momentum spilling over into the new week, it is likely that this currency pair will break through 145 to climb 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
Medium Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro gapped higher early this morning to hit 1.0950 but swiftly reversed to fall as low as 1.0936. With demand for the greenback remaining strong, further weakness for this currency pair can be expected.
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?
The level at 0.8780 has acted as a pretty significant resistance barrier for USDCHF since the start of August but that could change this week as demand for the US dollar could finally cause this currency pair to break above this resistance.
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
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Just like its European counterparts, the Pound declined for the fourth week in a row and continues to fall as markets opened early this morning. This currency pair is expected to remain under 1.2700 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?
After hitting a high of 1.3465 last Friday, USDCAD is making another attempt to surpass this level. We can expect this currency pair to remain elevated as the day progresses.
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 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting on 6 September 2023.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Weak energy data out of China last week showed demand for crude oil falling for the world’s largest importer with daily imports falling to a six-month low. After hitting a high of $84.20 per barrel last week to notch a seventh consecutive week of gains, crude prices could finally be running into some resistance in the near-term and are expected to be under some pressure today.
Next 24 Hours Bias
Weak Bearish
