IC Markets Asia Fundamental Forecast | 15 August 2023
What happened in the US session?
It was an empty calendar during the US session but the dollar index (DXY) hit a high of 103.45 overnight on concerns surrounding China’s economy as investors and traders sought for a safe-haven asset in the form of the US dollar. Fears surrounding Country Garden, China’s largest private developer, and the real estate sector are once again mounting.
What does it mean for the Asia Session?
The DXY pulled back from its overnight high to fall under 103 but it rebounded to move above this level once more as Asia came online. Meanwhile, China’s central bank unexpectedly cut key policy rates for the second time in three months this morning, in fresh signs that the authorities are ramping up monetary easing efforts to boost what can only be described as a sluggish economic recovery.
The Dollar Index (DXY)
Key news events today
Retail Sales (12:30 pm GMT)
Empire State Manufacturing Index (12:30 pm GMT)
What can we expect from DXY today?
Retail sales continue to grow steadily in the US with July’s reading expected to increase by 0.4% MoM, compared to June’s gain of 0.2%. Manufacturing activity in the state of New York surprised to the upside in the previous two months and another stronger than expected reading for August could indicate that this sector is stabilizing in this state. Stronger data from these two events could function as a bullish catalyst for DXY.
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 Bearish
Gold (XAU)
Key news events today
Retail Sales (12:30 pm GMT)
Empire State Manufacturing Index (12:30 pm GMT)
What can we expect from Gold today?
Retail sales continue to grow steadily in the US with July’s reading expected to increase by 0.4% MoM, compared to June’s gain of 0.2%. Manufacturing activity in the state of New York surprised to the upside in the previous two months and another stronger than expected reading for August could indicate that this sector is stabilizing in this state. Stronger data from these two events could function as a bullish catalyst for DXY and thus weigh on gold prices.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Minutes (1:30 am GMT)
What can we expect from AUD today?
The RBA released the minutes from last week’s monetary policy meeting where they left the cash rate unchanged at 4.1% for the second meeting in a row. These minutes showed that (1) the RBA sees a ‘credible path’ for inflation to return to the 2% to 3% range with the cash rate remaining at the current level, (2) consumption has slowed significantly and (3) the door for further hikes is open but data would need to surprise markedly to the upside. In all, the minutes were not overly hawkish but could provide some lift to the Aussie dollar.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
After dropping to a low of 0.5950 yesterday, the Kiwi has rebounded quite strongly and could climb towards 0.6000.
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 Bullish
The Japanese Yen (JPY)
Key news events today
GDP (11:50 pm GMT 14th August)
What can we expect from JPY today?
Japan released its preliminary GDP figures for the second quarter of 2023 early this morning which showed the economy growing 6.0% YoY, up from 1.3% YoY in the first quarter. This was a huge increase in economic growth, not only from the previous quarter but also from the forecast of 3.2% YoY.
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
Weak Bullish
The Euro (EUR)
Key news events today
ZEW Economic Sentiment (9:00 am GMT)
What can we expect from EUR today?
The ZEW Economic Sentiment has been falling for the past three months and August’s estimate shows another decline for the Eurozone amid a deteriorating economic outlook. Furthermore, the recovery in key trading partner China remains sluggish. With sustained demand for the US dollar thus far, the Euro could remain under pressure.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
PPI (6:30 am GMT)
What can we expect from CHF today?
The Producer Price Index, which measures wholesale inflation, contracted for the past two months and July’s estimates show this trend continuing. A weaker than expected reading could provide some lift to USDCHF.
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 Bearish
The Pound (GBP)
Key news events today
Claimant Count Change (6:30 am GMT)
What can we expect from GBP today?
The UK will be releasing employment-related data such as the claimant count change, unemployment rate and average earnings index. Claimant count is expected to be lower than the previous month while the earnings index is forecasted to increase, both of which are potential bullish catalysts for the Pound.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
CPI (12:30 pm GMT)
What can we expect from CAD today?
Inflation in Canada has been retreating steadily across all the various gauges and July’s estimates show further declines. Should the inflation data come in ‘soft’, USDCAD may find some support 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 3.0% 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 Bearish
Oil
Key news events today
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
The API stockpile levels increased strongly versus the forecast of a small drawdown last week. Despite rising inventory levels in the US and weaker energy data out of China last week, crude oil prices remain elevated. WTI oil dipped under the $82 per barrel level yesterday but crude prices are holding up well this far. A surprise drawdown in API stockpiles are likely to provide a short-term boost for this commodity.
Next 24 Hours Bias
Weak Bearish
