IC Markets Asia Fundamental Forecast | 18 August 2023
What happened in the US session?
Unemployment claims in the US registered 239k, which was slightly lower than the forecast of 240k and lower than last week’s reading of 250k while the Philly Fed Manufacturing Index experienced a surprise rebound in activity in August. This expansion was led by key indicators such as new orders, general activity and shipments turning positive. The dollar index (DXY) hit a high of 103.58 overnight as the combination of weaker claims and rebound in Philly manufacturing activity spurred demand for the US dollar.
What does it mean for the Asia Session?
The DXY is pulling back from the overnight high to trade around 103.20 as Asia comes online and is likely to slide lower for the first half of the day. The calendar is empty for Asia and the only notable news events are coming up during the Europe session.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
Unemployment claims in the US registered 239k, which was slightly lower than the forecast of 240k and lower than last week’s reading of 250k while the Philly Fed Manufacturing Index experienced a surprise rebound in activity in August. The DXY hit a high of 103.58 overnight as the combination of weaker claims and rebound in Philly manufacturing activity spurred demand for the greenback – the DXY is all but certain to close in the green for the fifth week in row.
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
No major news events.
What can we expect from Gold today?
Robust data from the US overnight functioned as a bullish catalyst for the DXY which caused gold prices to tumble as low as $1,885/oz. Prices have rebounded slightly during the Asia session but the downtrend could resume in the latter part of the day – this would mean that this precious metal is likely to close in the red for the fourth week in row.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Yesterday’s weak labour force report caused the Aussie to dive as low as 0.6365 but the Aussie has rebounded quite strongly to be one of the stronger currencies this morning. Price is currently trading around 0.6430 but AUDUSD is all but certain to close in the red for the fifth consecutive week.
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
Weak Bullish
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 Kiwi is one of the stronger performing currencies this morning after hitting a low of 0.5900 yesterday. It has since rebounded to trade around 0.5940 and could climb higher but it will also close in the red for the fifth consecutive week.
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
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% and July’s reading printed inline with the estimate of 3.1% YoY. This reading was also lower than the previous month’s figure of 3.3% YoY – 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 Bearish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT)
What can we expect from EUR today?
Headline CPI in the Eurozone has been retreating steadily since last November but the core reading actually increased from 5.3% YoY to 5.5% YoY for June. July’s estimates for both data points show the levels remaining unchanged and an over ‘soft’ reading would give the ECB some breathing space with regards to future rate hikes.
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
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 with USDCHF trading within a relatively narrow range since the start of August. With demand for the US dollar waning this morning, USDCHF is sliding lower.
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 Bearish
The Pound (GBP)
Key news events today
Retail Sales (6:00 am GMT)
What can we expect from GBP today?
Retail sales in the UK have grown over the past three months but July’s estimate points to a decrease of 0.7% MoM – which would be the second time this year that sales have decreased. The Pound hit 1.2785 before pulling back slightly overnight but it is now making another attempt towards this 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 Bullish
The Canadian Dollar (CAD)
Key news events today
IPPI (12:30 pm GMT)
RMPI (12:30 pm GMT)
What can we expect from CAD today?
The Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) have been declining on a monthly basis over the past couple of months but the latest estimates for both these indices show an increase for July – with a relatively large gain of 2.1% MoM for the RMPI. USDCAD is pulling back from the overnight high of 1.3550 and could potentially slide lower, especially if these indices print higher than their respective estimates.
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
No major news events.
What can we expect from Oil today?
Despite both API and EIA inventory levels registering higher than expected drawdowns this week, which signals increased demand in the US, crude oil prices have continued to fall since 10th August with WTI oil tumbling below the $78.50 per barrel level. However, crude prices have bounced this morning on news that China made a rare drawdown on crude oil inventories in July – this was their first draw in 33 months. Crude prices could close in the red for the second week in a row.
Next 24 Hours Bias
Weak Bullish
