IC Markets Asia Fundamental Forecast | 18 July 2023
What happened in the US session?
The Empire State Manufacturing Index held steady as the headline general business conditions index fell from 6.6 to 1.1 for the month of July. The reading was higher than the forecast of -3.5 as new orders inched higher, shipments expanded and price increases continue to moderate. However, optimism for future business conditions remained subdued. The dollar index (DXY) spiked as high as 100.20 in the aftermath of this data release but swiftly fell under 100 by mid-day US.
What does it mean for the Asia Session?
The DXY continues to trade under 100 and looks likely to slide lower as the day progresses. The Reserve Bank of Australia (RBA) will be releasing the minutes of the monetary policy meeting that was held on 4th July – a hawkish-sounding report would act as a potential tailwind for the Aussie dollar as DXY weakness persists.
The Dollar Index (DXY)
Key news events today
Retail Sales (12:30 pm GMT)
Industrial Production (1:15 pm GMT)
What can we expect from DXY today?
Upcoming retail sales and industrial production figures will provide further insight into the state of consumer spending and manufacturing activity in the US. The latest ISM manufacturing PMI report indicated activity remains in contraction territory and we could see this reflected in another weak print for industrial production.
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
No major news events.
What can we expect from Gold today?
Gold is making another attempt to break above $1,965/oz this morning as the sell-off in the US dollar continues. Could this precious metal finally climb above this recent resistance level and push towards the $1,980-region?
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (1:30 am GMT)
What can we expect from AUD today?
The RBA will be releasing the minutes of the monetary policy meeting that was held on 4th July – a hawkish-sounding report would act as a potential tailwind for the Aussie dollar as DXY weakness persists.
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
CPI (10:45 pm GMT)
What can we expect from NZD today?
Inflation in New Zealand has been retreating quite sharply and the latest reading is likely to show this trend continuing. The Kiwi found support around 0.6320 yesterday and is pushing higher this morning but could run out of steam as inflation data hits the news wires in the latter part of the day.
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
No major news events.
What can we expect from JPY today?
The Japanese yen has been trading around the 139-level and could fall towards 138 on the back of the ongoing US dollar weakness as the day progresses.
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 28 July 2023
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro briefly rised above 1.1250 early this morning and could remain elevated for most parts of today. It is a relatively quiet calendar for the Eurozone and the direction of the DXY will dictate the flows for the Euro.
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?
Just like the Japanese yen, the Swiss franc also saw heavy inflows over the past few days. This currency pair is trading around 0.8600 and is likely to trade within a narrow range 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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
With no economic data releases in the UK today, the direction for the pound will depend once again on the demand, or rather the lack of demand for the US dollar. This pair is currently trading around 1.3080 and should remain above 1.3050 today.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
CPI (12:30 pm GMT)
IPPI & RMPI (12:30 pm GMT)
What can we expect from CAD today?
Just like most other developed economies, inflationary pressures in Canada have also been moderating steadily. The latest readings should post a similar trend, especially for the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI).
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 6 September 2023
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Both the API and EIA Inventory levels grew last week and another build in stockpile levels would only add to further downward pressure on crude oil prices. In addition, yesterday’s China GDP data disappointed market expectations and drove WTI oil under the $75 per barrel region. The near-term outlook for crude looks bleak and is showing in the recent pullback in prices.
Next 24 Hours Bias
Medium Bearish
