IC Markets Asia Fundamental Forecast | 27 October 2023
What happened in the US session?
As widely expected, the ECB kept its main refinancing rate on hold at 4.5% after an unprecedented run of 10 consecutive rate hikes. However, ECB President Christine Lagarde was clear during her press conference that just because the ECB “kept rates on hold does not mean that they will never hike again”. Overall, it was a statement and conference that leaned more to the side of ‘hawkishness’ rather than neutral. The initial market reaction saw the Euro tumble as low as 1.0525 before reversing strongly to trade around 1.0560 by the end of the US session.
Meanwhile, the advance estimate for the third quarter GDP printed at 4.9% YoY which was higher than the forecast of 4.5% while unemployment claims of 210k were higher than the estimate as well as last week’s figures. The higher claims signal a potential weakness in the US labour market which offset the robust GDP result. The dollar index (DXY) climbed as high as 106.89 before pulling back to 106.60.
What does it mean for the Asia Session?
The core Consumer Price Index (CPI) for Tokyo, Japan, rose 2.7% YoY in October, accelerating from 2.5% in the previous month. Tokyo’s core inflation rate, a leading indicator for nationwide price trends, also surpassed the Bank of Japan’s (BoJ) 2%-target for the 17th consecutive month as inflationary pressures persisted. Re-acceleration of inflation could make BoJ officials rethink their position on the current ultra-dovish monetary policy stance – USD/JPY tumbled towards the 150.00-threshold as Asian markets came online.
The Dollar Index (DXY)
Key news events today
PCE Price Index (12:30 pm GMT)
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from DXY today?
The PCE Price index increased on a monthly and annualised basis in August with the monthly reading increased by 0.4% which was the sharpest increase since January. This latest print raises some concerns that inflationary pressures are rebounding due to the increase in energy prices over the last few months, especially for crude oil. A hotter-than-expected PCE print is likely to fuel demand for the greenback.
Meanwhile, the final results from the University of Michigan’s (UoM) Consumer Sentiment survey will be released. Optimistic sentiment has faded over the past three months due to a substantial increase in concerns over inflation. Year-ahead inflation expectations rose from 3.2% to 3.8% for October’s preliminary results. Should the final print come in higher, it would serve as a 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 Bearish
Gold (XAU)
Key news events today
PCE Price Index (12:30 pm GMT)
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from Gold today?
The PCE Price index increased on a monthly and annualised basis in August with the monthly reading increased by 0.4% which was the sharpest increase since January. This latest print raises some concerns that inflationary pressures are rebounding due to the increase in energy prices over the last few months, especially for crude oil. A hotter-than-expected PCE print is likely to fuel demand for the greenback.
Meanwhile, the final results from the University of Michigan’s (UoM) Consumer Sentiment survey will be released. Optimistic sentiment has faded over the past three months due to a substantial increase in concerns over inflation. Year-ahead inflation expectations rose from 3.2% to 3.8% for October’s preliminary results. Should the final print come in higher, it would serve as a bullish catalyst for the US dollar and potentially drive gold prices lower.
Next 24 Hours Bias
Weak Bullish
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 strongest currencies this morning as it raced towards 0.6350 and could remain elevated for the initial part of the day. Should the PCE Price Index come in hot, the Aussie could come under selling pressure during the US session.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the fourth consecutive meeting.
- Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.
- Some further tightening of monetary policy may be necessary.
- Next meeting is on 7 November 2023.
Next 24 Hours Bias
Medium Bullish
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 one of the strongest currencies this morning as it raced towards 0.5830 and could remain elevated for the initial part of the day. Should the PCE Price Index come in hot, the Kiwi could face strong headwinds during the US session.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee agreed that the OCR needs to stay at a restrictive level to ensure that annual consumer price inflation returns to the 1 to 3% target range and to support maximum sustainable employment.
- While supply constraints in the economy continue to ease, inflation remains too high.
- Spending needs to remain subdued to better match the economy’s ability to supply goods and services, so that consumer price inflation returns to its target range.
- Next meeting is on 29 November 2023.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The core Consumer Price Index (CPI) for Tokyo, Japan, rose 2.7% YoY in October, accelerating from 2.5% in the previous month. Tokyo’s core inflation rate, a leading indicator for nationwide price trends, also surpassed the Bank of Japan’s (BoJ) 2%-target for the 17th consecutive month as inflationary pressures persisted. Re-acceleration of inflation could make BoJ officials rethink their position on the current ultra-dovish monetary policy stance – USD/JPY tumbled towards the 150.00-threshold as Asian markets came online.
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 Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
As widely expected, the ECB kept its main refinancing rate on hold at 4.5% after an unprecedented run of 10 consecutive rate hikes. However, ECB President Christine Lagarde was clear during her press conference that just because the ECB “kept rates on hold does not mean that they will never hike again”. Overall, it was a statement and conference that leaned more to the side of ‘hawkishness’ rather than neutral. The initial market reaction saw the Euro tumble as low as 1.0525 before reversing strongly to trade around 1.0560 by the end of the US 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
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
A stronger US dollar pushed USD/CHF briefly above the 0.9000-threshold before reversing to fall lower as Asian markets came online. Demand for the greenback was waning this morning, causing this currency pair to slide lower.
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
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The stronger US dollar drove the Pound as low as 1.2070 before rebounding off this level. With demand for the US dollar fading this morning, the Pound continued its ascend towards 1.2150.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Canadian dollar is showing significant strength this morning causing USD/CAD to retreat from its overnight high of 1.3845. This currency pair is likely to slide lower when it could find support around 1.3785.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%, for the second meeting in a row.
- Canada’s economy has weakened with growth forecast for 2023 lowered to 1.2% from 1.8%
- Economic growth is expected to continue to be weak, growing 0.9% and 2.5% in 2024 and 2025 respectively.
- The Bank expects CPI inflation to average around 3.5% through the middle of 2024 before gradually easing to 2.0% in 2025.
- However, the near-term path for CPI is higher because of energy prices and ongoing persistence in core inflation.
- Next meeting is on 6 December 2023.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices declined as concerns surrounding the Middle East conflict eased yesterday. However, Israel moved forward with its ground attack which caused prices to edge higher overnight. Although it was not a full ground invasion, tensions remain high. WTI oil fell as low as $82.40 before rising above the $84-level during the Asia session.
Next 24 Hours Bias
Weak Bullish
