IC Markets Asia Fundamental Forecast | 25 September 2023
What happened in the US session?
The flash Composite PMI for the US showed a further loss of service sector momentum in September. Although the Composite reading of 50.1 still points to an overall expansion of the US economy, this flash estimate was a 7-month low as new orders, a sign of future demand, fell at the fastest pace this year.
Meanwhile, hawkish comments by several Federal Reserve officials who signalled higher interest rates for longer caused the dollar index (DXY) to climb as high as 105.65 during the US session. Fed Governor Michelle Bowman favours more than one further rate hike to ensure ‘timely’ control of inflation while Boston Fed President Collins and San Francisco Fed President Daly also chimed in with the “higher for longer” mantra.
What does it mean for the Asia Session?
After registering 10 consecutive weeks of closing in the green, the DXY gapped slightly lower at 105.57 this morning’s open but managed to stay above 105.50 and then proceeded to rise towards 105.70. Demand for the greenback remains strong but DIET could find resistance around the 105.90-level.
The Dollar Index (DXY)
Key news events today
FOMC Member Kashkari Speaks (10:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Minneapolis President Neel Kashkari is due to speak at the University of Pennsylvania’s Wharton School where audience questions are expected. He too could sing a hawkish tune as per his fellow FOMC members which would potentially drive DXY higher later today.
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
FOMC Member Kashkari Speaks (10:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Minneapolis President Neel Kashkari is due to speak at the University of Pennsylvania’s Wharton School where audience questions are expected. He too could sing a hawkish tune as per his fellow FOMC members which would potentially drive DXY higher later today and add further downward pressure on gold prices.
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 was one of the weakest currencies at today’s open as it fell as low as 0.6425 at the beginning of the Asia session. Expect pressures to remain for this currency 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
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Along with the Aussie, the Kiwi was also another weak performing currency this morning with price tumbling as low as 0.5957 at the open this morning. Downward pressures are likely to remain for the Kiwi 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
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Following last week’s dovish monetary policy decision by the Bank of Japan (BoJ), the Japanese yen remains relatively weak versus its peers. USD/JPY gapped lower this morning to open at 148.20 but quickly filled this gap to bounce as high as 148.50. With demand for the greenback remaining strong, this currency pair is likely to remain elevated today but the 148.50-level has acted as a relatively strong resistance area in recent weeks.
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
German ifo Business Climate (8:00 am GMT)
ECB President Lagarde Speaks (1:00 pm GMT)
What can we expect from EUR today?
The German ifo Business Climate index fell for the fourth time in a row in August as companies are increasingly becoming more pessimistic about the months ahead as the German economy cools notably. The estimate for September points to another month of decline which does not bode well for the wider European economy. The Euro could come under pressure once more during the Europe session. Meanwhile, ECB President Christine Lagarde is due to testify before the Committee on Economic and Monetary Affairs in Brussels and her remarks are likely to impact 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 is on 26 October 2023.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following the unexpected decision by the Swiss National Bank (SNB) to keep the policy rate unchanged at 1.75% last week, the Swiss franc has weakened considerably. USD/CHF broke above 0.9000 for the first time since mid-June as a hawkish Federal Reserve keeps this currency pair elevated.
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
No major news events.
What can we expect from GBP today?
Following the unexpected decision by the Bank of England (BoE) to keep the official bank rate unchanged at 5.25% last week, the Pound has weakened considerably versus its peers. GBP/USD broke below 1.2250 for the first time since the end of March as a hawkish Federal Reserve keeps driving this currency pair lower.
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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Last Friday’s retail sales in Canada were mixed as core sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, rose 1.0% MoM versus the estimate of 0.5% while headline sales increased by 0.3% MoM versus the estimate of 0.4%. Food and beverage retailers led the sales for the month of July. With oil prices remaining elevated over recent weeks, the Canadian dollar has strengthened considerably with USD/CAD breaking below 1.3500. This currency pair could climb higher as the rise in crude prices appears to be stalling for now while overall retail sales figures were somewhat disappointing.
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
No major news events.
What can we expect from Oil today?
Crude prices suffered its first close in the red after three weeks of strong gains where WTI oil gained 13% over this period. However, prices failed to stay above $92 per barrel last week and have now dropped under the $90 as a hawkish Federal Reserve raises concerns that higher rates could stifle demand for crude despite the tighter supply going into the last quarter of 2023.
Next 24 Hours Bias
Weak Bearish
