IC Markets Asia Fundamental Forecast | 27 July 2023
What happened in the US session?
The Federal Reserve raised the Federal Funds Rate by 25 bps to bring it up to 5.5% – the highest level in 22 years. In addition, this was the 11th time that the Fed lifted rates since March 2022. Chairman Jerome Powell emphasized that policymakers will be dependent on incoming data to determine future monetary policy action, keeping the possibility of further rate hikes open. He added that the recent data also indicated a resilient economy and labour market. The dollar index (DXY) dived sharply as Chairman Powell began his press conference, falling from a high of 101.30 to 100.88. Markets have appeared to digest the press conference as dovish, acting as a catalyst for the sell-off in the US dollar.
What does it mean for the Asia Session?
The DXY gapped higher this morning to touch 101.10 but it then proceeded to swiftly reverse and slide under 101 once more. As market participants digest the latest FOMC statement and press conference, we can expect weakness in the US dollar to accumlate and drive the DXY lower today.
The Dollar Index (DXY)
Key news events today
GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The US will release its advance estimate for first quarter GDP figures today. With the third estimate showing a growth of 2.0% YoY, we can expect the advance estimate to print close to this figure. Unemployment claims have been trending lower over the past two weeks, coming in lower than their respective forecasts. Claims are forecasted to hit 234k, which is higher than last week’s reading of 228k. Should claims figures come in higher than the estimate, the sell-off in the US dollar is likely to accelerate.
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% 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
Medium Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Gold prices surged from $1,967/oz to as high as $1,978/oz as markets inferred Chairman Jerome Powell’s FOMC press conference as dovish. As market participants from Asia and Europe digest the latest FOMC outcome, they could provide additional fuel for gold to remain elevated. Unemployment claims in the US are forecasted to hit 234k, which is higher than last week’s reading of 228k. Should claims figures come in higher than the estimate, the demand for this precious metal is likely to accelerate.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
As the US dollar sold off hard overnight, the Aussie dollar rallied strongly to hit 0.6782. This currency pair is likely to climb higher as the US dollar loses its appeal after the latest FOMC meeting.
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 is rallying strongly this morning as it is one of the best performing currencies versus the US dollar. However, 0.6240 is a key resistance level for the Kiwi and a break above this threshold will most likely attract more Kiwi bulls.
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
No major news events.
What can we expect from JPY today?
Despite the ongoing monetary policy divergence between the Federal Reserve and the Bank of Japan, USDJPY is tumbling despite Chairman Jerome Powell raising the interest rates up to 5.50%. This currency pair broke under 140 and further downside action can be expected.
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
Strong Bearish
The Euro (EUR)
Key news events today
ECB Monetary Policy Statement (12:15 pm GMT)
ECB Press Conference (12:45 pm GMT)
What can we expect from EUR today?
The ECB will be following in the footsteps of the Federal Reserve as they too are widely expected to raise their main refinancing rate by 25 bps to bring it up to 4.25%. Following the statement, ECB President Christine Lagarde will be delivering her remarks during the press conference where she could jawbone the Euro to greater heights. The Euro momentarily broke above 1.1100 overnight and is currently making another attempt to climb past this level again.
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?
Following the FOMC statement and press conference, USDCHF dived under 0.8600 as the US dollar sold off hard. After retracing higher at the start of the Asia session, this currency pair has resumed its downward slide.
- 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
Medium Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Just like the Euro, the pound is rallying strongly following the latest FOMC meeting. It is now approaching a key resistance level at 1.2960 and a break above this level is likely to amass a bigger herd of pound bulls.
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?
With market participants digesting the FOMC press conference as dovish, USDCAD fell sharply overnight but has since found support around the 1.3180-mark. Should this level give way, further downside action for this currency pair can be expected as the greenback loses its shine.
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
No major news events.
What can we expect from Oil today?
Following the increase in API stockpiles, EIA crude oil inventories decreased by only 600k versus the forecasted drawdown of 2.2M barrels. However, the hard sell-off in the US dollar provided sufficient lift to crude oil prices despite the Federal Reserve raising the Federal Funds Rate once more. Although the data for inventory levels were mixed this week, the prospect of further stimulus measures from China coupled with the fragility of the US dollar have buoyed crude prices with WTI oil pushing towards the $79.50 per barrel region.
Next 24 Hours Bias
Medium Bullish
