IC Markets Asia Fundamental Forecast | 17 August 2023
What happened in the US session?
The minutes from July’s FOMC meeting showed that Federal Reserve Chairman Jerome Powell and his fellow policymakers remain concerned that inflation would fail to recede as observed over the last 10-12 months, especially after the recent uptick in the CPI and PPI data for the month of July. The case for further rate hikes at the next FOMC meeting in September is building as the dollar index (DXY) climbed above 103.50 overnight.
What does it mean for the Asia Session?
The ongoing demand for the US dollar is likely to keep pressure on gold prices as well as the other major currency pairs. The Australian Labour Force report will be released this morning and could provide some lift to the Aussie should employment figures remain robust.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Unemployment claims have printed higher than the estimates for the past two weeks which should generally act as a bearish catalyst for the DXY. However, with inflation in the US experiencing an uptick for the month of July as well the recent hawkish minutes from July’s FOMC meeting, demand for the green back has increased significantly over the past few weeks. Another stronger than expected claims figure could act as a short-term bearish catalyst, albeit a weak one.
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
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Unemployment claims have printed higher than the estimates for the past two weeks which should generally act as a bearish catalyst for the DXY and thus bullish for gold. However, with inflation in the US experiencing an uptick for the month of July as well the recent hawkish minutes from July’s FOMC meeting, demand for the green back has increased significantly over the past few weeks which has driven gold prices under the $1,900/oz level. Another stronger than expected claims figure could act as a short-term bearish catalyst for DXY, albeit a weak one, and potentially provide some lift for gold.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (1:30 am GMT)
What can we expect from AUD today?
The labour force report will provide insight into the state of the Australian labour market with the unemployment rate forecasted to edge higher from 3.5% to 3.6% in July while approximately 14.6k jobs are expected to be added. An overall stronger than expected report could provide some support to the Aussie.
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?
After the Reserve Bank of New Zealand (RBNZ) kept their official cash rate unchanged at 5.5% for the third meeting in a row, the Kiwi initially climbed on a relatively hawkish statement before reversing overnight to dive under 0.5950 as hawkish FOMC minutes buoyed demand for the US dollar once more.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Strong Bearish
The Japanese Yen (JPY)
Key news events today
National Core CPI (11:30 pm GMT)
What can we expect from JPY today?
Japan’s national core CPI has been relatively steady over the last five months, ranging between 3.1% and 3.4%. July’s estimate shows this reading sliding lower to 3.1% from 3.3% in June, allowing the Bank of Japan to maintain their ultra-dovish monetary policy stance which is likely to cause the Japanese yen to weaken further.
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
Trade Balance (9:00 am GMT)
What can we expect from EUR today?
The Euro trade deficit narrowed sharply in May but June’s estimate indicates the balance to show a relatively healthy surplus of €3.8B. However, demand for the greenback has increased significantly over the past few weeks pushing the Euro under 1.0900 and is likely to 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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Despite the stronger US dollar over the past few weeks, the Swiss franc has shown relatively strong resilience but USDCHF finally went above 0.8800 which has functioned as significant overlap resistance in August. This currency pair could edge higher today.
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
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Stronger than expected headline and core CPI readings in the UK have offset the hawkish FOMC minutes, causing the Pound to hold up relatively well as compared to its European counterparts. It is currently trading around 1.2720 this morning and could manage to stay above the 1.2700-level.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Hawkish FOMC minutes drove USDCAD to a high of 1.3550 overnight. This currency pair is currently pulling back from this level but is expected to remain elevated today.
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
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories fell more than the estimate of a 2.4M barrel-decline with 6M barrels being drawn. Despite API stockpile levels also falling by 6.2M barrels versus the forecast of a 2.1M drawdown, which suggests stronger demand in the US, crude oil prices tumbled below the $79 per barrel level overnight. Concerns over the worsening economic conditions in China continue to mount as crude prices fell to a two-week low.
Next 24 Hours Bias
Strong Bearish
