IC Markets Asia Fundamental Forecast | 21 August 2023
What happened in the US session?
It was an empty calendar for the US session last Friday as the dollar index (DXY) notched a fifth straight week of gains to close at 103.43, causing the majors such as the Euro slide under 1.0900. Meanwhile, there were two notable new events emerging from Europe.
Consumer inflation in the Eurozone for the month of July came inline with the estimates as headline CPI dropped from 5.5% YoY in June to 5.3% YoY while the core remained unchanged at 5.5% YoY. Although still at historically high levels, headline CPI has retreated quite sharply while the core remains sticky.
UK retail sales fell 1.2% MoM in July, which was double the estimate of -0.6% and also the largest monthly decline in nearly a year. The Pound came under heavy selling pressure in the aftermath of this data release, falling briefly under 1.2700 before rebounding to close at 1.2730.
What does it mean for the Asia Session?
Monday’s calendar is sparse as well with not a single noteworthy news event that could function as a potential catalyst for any currency pair or commodity. The DXY dropped as low as 103.30 at the open before reversing to climb higher pushing towards 103.50.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
After five strong weeks of gains for the DXY, demand for the US dollar has not waned and continues to drive this index higher this morning. Overall, the DXY is relatively strong at today’s open and could climb higher.
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
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold prices have fallen for four consecutive weeks with spot prices falling under the $1,900/oz mark for the first time since the end of June. This precious metal remains under pressure and is likely to remain depressed today.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie has tumbled for the past five weeks and remains under relatively heavy selling pressure as it dropped under 0.6400, a level last seen in November of 2022. AUDUSD could fall towards 0.6300 this 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 Bearish
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 has been one of the worst performing currencies over the past five weeks and continues to fall as the new trading week kicked off this morning. It is likely to fall under 0.5900 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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Demand for the Japanese yen picked up last Thursday and Friday but USDJPY found support around the 145-level to close just under 145.40. This currency pair gapped lower at today’s open but managed to stay above 145 before reversing to bounce as high as 145.60.
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
No major news events.
What can we expect from EUR today?
The Euro hit a low of 1.0845 last Friday which has acted as a relatively strong support level in late June and early July. Price could bounce off this level once more to retrace higher today.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc was quite resilient in the face of strong demand for the US dollar over the past few weeks but USDCHF finally broke above a key resistance level at 0.8800 with conviction last Friday. This pair is likely to remain above 0.8800 and could push higher this week.
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 UK consumer inflation data last week helped to prop up the Pound, with GBPUSD closing above 1.2700 on Friday. This currency pair could climb above 1.2750 today.
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?
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 figures printed higher than their respective estimates as well as coming higher than the previous month – signalling a potential resurgence in inflation for the manufacturing sector. After going as high as 1.3570 last week, USDCAD is falling at today’s open with price going under 1.3540.
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?
After registering the first weekly loss in eight weeks last Friday, crude oil prices have started the new trading week in the green. WTI oil bounced off the $79 per barrel region last Thursday and has climbed above $81 this morning. News of China’s central bank and financial regulators meeting bank executives to boost loans to support the economic recovery have buoyed oil prices and could keep crude prices elevated in the near-term.
Next 24 Hours Bias
Medium Bullish
