IC Markets Asia Fundamental Forecast | 25 July 2023
What happened in the US session?
The flash Composite PMI for July showed the US losing momentum as the growth rate of the service sector slowed to 52.4, coming in lower than its estimate of 54.0. Although manufacturing activity hit a 3-month high, it remains in contraction territory while the Composite and service PMI readings both hit a 5-month low. The dollar index (DXY) initially pulled back to 101.10 upon this news release but it swiftly reversed to rise towards 101.40.
What does it mean for the Asia Session?
After touching 101.42 during the early Asia trading hours, the DXY then proceeded to drift lower off this level. The Bank of Japan will be releasing its Core CPI reading during mid-day for the Asia session – past readings have shown core inflation edging higher over the last three months. The current estimate of 3.0% YoY indicates that core inflation in Japan is likely to be elevated once more.
The Dollar Index (DXY)
Key news events today
CB Consumer Confidence (2:00 pm GMT)
What can we expect from DXY today?
The Conference Board Consumer Confidence Index improved substantially in June and with the equivalent report from the University of Michigan indicating strong consumer confidence levels recently, July’s readings are likely to show this trend continue. The results of this survey could act as a potential catalyst for US dollar bulls in the latter part of the day.
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
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold rebounded from $1,955/oz to bounce strongly as spot prices hit $1,962/oz as the Asia session got under way. Should the sell-off in the US dollar gain further traction, gold is likely to remain elevated.
Next 24 Hours Bias
Strong Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie dollar jumped from 0.6730 to 0.6755 as the greenback saw no love during the Asia session. Should US dollar weakness persist, this currency pair could climb higher.
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
Strong Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Just like its neighbour, the Kiwi dollar rose sharply from 0.6190 to 0.6215 as the US dollar sold off. This currency pair is currently retreating from this morning’s peak but the uptrend could resume as the day progresses.
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
Strong Bullish
The Japanese Yen (JPY)
Key news events today
Core CPI (5:00 am GMT)
What can we expect from JPY today?
The Bank of Japan will be releasing its core CPI reading after lunch during the Asia session – past readings have shown core inflation edging higher over the last three months. The current estimate of 3.0% YoY indicates that core inflation in Japan is likely to be elevated once more.
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
Medium Bearish
The Euro (EUR)
Key news events today
German ifo Business Climate Index (8:00 am GMT)
What can we expect from EUR today?
Not only has the ifo Business Climate index in Germany been trending lower over the last couple of months, it has also printed well below its estimate. The current forecast shows a reading of 88.0, lower than last month’s reading of 88.5. Another miss for this index would come as no surprise and could weigh on 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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After hitting 0.8700 overnight, USDCHF retreated from this level as the US dollar sell-off picked up during the Asaia session and it could continue to slide lower as the day progresses.
- 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?
The flash Composite PMI reading confirmed growth rising at the weakest pace in the UK as the private sector output hit a 6-month low. However, with the US dollar selling off this morning, the pound is pushing towards 1.2840.
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
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
After strong demand for the US dollar yesterday, the greenback is now selling off pretty sharply causing USDCAD to follow suit as it tumbles towards 1.3150. Further downward pressures for this currency pair can be expected 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% in the summer, but concerns have increased about inflation staying above the 2% target.
- Next meeting on 6 September 2023
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Crude prices were lifted overnight by expectations of further stimulus measures from China. WTI oil broke above the $78 per barrel region easily and should API inventory levels draw down more than the forecast, we could see crude prices rising higher.
Next 24 Hours Bias
Medium Bullish
