IC Markets Asia Fundamental Forecast | 2 October 2023
What happened in the US session?
Last Friday, the headline PCE Price Index increased marginally from 3.4% YoY in July to 3.5% YoY in August while the core reading eased further from 4.3% YoY to 3.9% YoY over the same period. On a monthly basis, both the headline and core readings increased less than their original estimates. This overall softer-than-expected PCE data ignited hopes for another pause in interest rate hikes by the Federal Reserve.
After falling as low as 105.65, the dollar index (DXY) climbed as high as 106.25 following the release of the PCE Price Index, which is the Federal Reserve’s preferred measure of inflation.
What does it mean for the Asia Session?
Despite softer inflation data, the DXY notched its 11th consecutive week of gains and this index opened above the 106-level and could climb higher during the Asia session. China will release its Caixin Composite PMI readings for the month of September during the Asia session. Stronger-than-anticipated readings would indicate continued expansion for the manufacturing and service sectors in China and this could potentially function as a bullish catalyst for crude oil.
The Dollar Index (DXY)
Key news events today
ISM Manufacturing PMI (2:00 pm GMT)
FOMC Chair Powell Speaks (3:00 pm GMT)
What can we expect from DXY today?
The ISM Manufacturing PMI has contracted over the past ten months and the estimate for September points to another month of contraction, albeit at a slower rate. Manufacturing activity in the US continues to be depressed but is beginning to show some signs of improvement.
In addition, Federal Reserve Chairman Jerome Powell along with Federal Reserve Bank of Philadelphia President Patrick Harker is due to participate in a roundtable discussion with workers, small business owners and community leaders in York where they could follow in the footsteps of their fellow FOMC members and also chime in with further hawkish rhetoric which would act as another bullish catalyst for the US dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 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 31 October to 1 November 2023.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
ISM Manufacturing PMI (2:00 pm GMT)
FOMC Chair Powell Speaks (3:00 pm GMT)
What can we expect from Gold today?
The ISM Manufacturing PMI has contracted over the past ten months and the estimate for September points to another month of contraction, albeit at a slower rate. Manufacturing activity in the US continues to be depressed but is beginning to show some signs of improvement.
In addition, Federal Reserve Chairman Jerome Powell along with Federal Reserve Bank of Philadelphia President Patrick Harker is due to participate in a roundtable discussion with workers, small business owners and community leaders in York where they could follow in the footsteps of their fellow FOMC members and also chime in with further hawkish rhetoric which would act as another bullish catalyst for the US dollar. Naturally, any gains in the greenback would add further downward pressure on gold price.
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 gapped lower this morning to open at 0.6420 but proceeded to rise as high as 0.6445. After last Friday’s strong sell-off, the Aussie could reverse the downturn and stay elevated today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third 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 is on 3 October 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?
The Kiwi gapped lower this morning to open at 0.5990 but proceeded to briefly rise above 0.6000. After last Friday’s strong sell-off, the Kiwi could reverse the downturn and stay elevated today.
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
Manufacturing PMI (12:30 am GMT)
What can we expect from JPY today?
Manufacturing conditions in Japan deteriorated at a sharper rate in September as the manufacturing PMI reading fell to 48.5 to mark the fourth consecutive month of contraction. Production and new orders experienced sharper falls while backlogs declined at the fastest pace since April. Weaker manufacturing activity allows the Bank of Japan to continue its ultra-dovish monetary policy stance. The USD/JPY gapped higher this morning to open at 149.60 and is likely to remain elevated 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% and -0.5% from the target level.
- Inflation expectations have shown some upward movements against medium- to long-term inflation expectations and wage growth rise, accompanied by changes in factors such as firms’ wage- and price-setting behaviour.
- Japan’s economy is likely to continue recovering moderately for the time being.
- Next meeting is on 31 October 2023.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Manufacturing PMI (8:30 am GMT)
Unemployment (9:00 am GMT)
What can we expect from EUR today?
Manufacturing activity in the Eurozone has been contracting for nearly a year now and the estimate for September points to another deeper contraction for this sector, which is looking very fragile amid waning demand. The unemployment rate stayed at a record low of 6.4% in July 2023 and the forecast for September shows the rate remaining unchanged at 6.4%. A weaker-than-expected PMI reading is likely to weigh on the Euro during the Europe session.
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 is on 26 October 2023.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
Retail Sales (6:30 am GMT)
What can we expect from CHF today?
On an annualised basis, retail sales in Switzerland have been declining for over a year as higher interest rates appear to take its toll on consumer spending. Another round of weak-than-expected sales is likely to weaken the Swiss franc and drive USD/CHF higher.
Central Bank Notes:
- The SNB unexpectedly kept the policy rate unchanged at 1.75% in September.
- Inflation forecasts remain unchanged at 2.2% for both 2023 and 2024 while it was lowered from 2.1% to 1.9% for 2025.
- 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 projection for GDP growth this year remained unchanged at 1.0%.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Manufacturing PMI (8:30 am GMT)
What can we expect from GBP today?
Just like its European neighbours, the UK’s manufacturing sector has also been contracting for over a year with no major improvement in sight for this sector as both production and backlogs of work experienced steep declines. Another round of weaker PMI reading is likely to keep the Pound under pressure.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to maintain its Official Bank Rate at 5.25%.
- Four members preferred to increase the Bank Rate by 0.25 percentage points, to 5.5%.
- CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term.
- The mean projection for CPI inflation remained unchanged and is expected to decline to 2.0% and 1.9% at the two and three-year horizons, respectively.
- Next meeting is on 2 November 2023.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
Manufacturing PMI (1:30 pm GMT)
What can we expect from CAD today?
Manufacturing activity points to a fourth consecutive month of contraction in Canada as both new orders and production output fell at the quickest pace this year. Amid the deteriorating backdrop, business confidence slipped to its lowest level since January. USD/CAD broke above 1.3500 last Friday and is expected to remain elevated today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- 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 is on 25 October 2023.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
Caixin Composite PMI (1:45 am GMT)
What can we expect from Oil today?
Following the decline last Friday, crude oil prices have stabilized and climbed higher at this morning’s open. WTI oil found support around the $90 per barrel region and could edge higher should manufacturing and services activity in China show a marked improvement that should act as a potential bullish for crude oil.
Next 24 Hours Bias
Weak Bullish
