IC Markets Asia Fundamental Forecast | 3 July 2023
What happened in the US session?
The ISM Manufacturing PMI for the month of June contracted for the eight month in a row as the index fell to 46.0, which was also the weakest reading thus far. Manufacturing activity in the US continues to slow as new orders, production and employment all highlight quite significant fragility. On a positive note, the ISM prices index decreased to 41.8 from 44.2, further emphasizing the deceleration of inflationary pressures. These survey results caused the dollar index (DXY) to fall sharply to hit 102.75 before swiftly bouncing up to the 103-region.
What does it mean for the Asia Session?
The ISM survey results should have acted as a catalyst for further weakening of the US dollar but the move was short-lived as demand for the US dollar did not wane in a notable fashion during the US session. However, DXY is drifting lower at the start of the Asia session and the dollar sell-off could pick up as the day progresses.
The Dollar Index (DXY)
Key news events today
Independence Day
What can we expect from DXY today?
US markets are closed on the 4th of July for Independence Day celebrations and will fully re-open on the 5th. As such, we can expect lower trading volume during the latter part of the day. The latest ISM survey findings should have resulted in further downside action for the DXY but it failed to break below 102.75. Apart for the upcoming RBA cash rate announcement, the calendar is pretty quiet. However, we could see demand for the US dollar pick up should the RBA release a dovish statement and outlook for future monetary policy actions.
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
Medium Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Contracting manufacturing activity and falling prices from the ISM PMI survey propelled gold higher as spot prices went beyond $1,930/oz briefly before retreating to $1,920/oz region. With demand for DXY accelerating during the Asia session, gold could drift lower towards $1,920/oz again.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Statement (4:30 am GMT)
What can we expect from AUD today?
With inflationary pressures retreating quite sharply for the month of May, the Reserve Bank of Australia (RBA) is very likely to hold their official cash rate at 4.10% and provide a dovish outlook for future monetary policy actions.
Central Bank Notes:
- The RBA increased the cash rate target by 25 basis points to 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 4 July 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?
The Kiwi is all but certain to track the Australian dollar today when the RBA announces its official cash rate statement. With demand for the DXY picking up during the Asia session and a possible hold on the cash rate by the RBA, the Kiwi is likely to be under pressure.
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 12 July 2023
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With a relatively quiet calendar today and US equities registering small gains overnight, risk-on sentiment remains in play and USDJPY could continue to grind higher.
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 27 July 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 latest ISM survey findings should have resulted in further gains for the Euro but it ran out of steam after hitting 1.0930 overnight. This pair has retreated to 1.0910 and is sliding lower this morning.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After falling as low as 0.8960 overnight on the back of weak ISM PMI data out of the US, USDCHF is now rising during the Asia session as the sell-off in DXY was short-lived and should continue to climb higher until Europe comes online.
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% 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?
Along with the Euro, Cable soared on the back of weak PMI data out of the U.S. as this pair broke above 1.2720 once more. However, it retreated sharply and fell as low as 1.2675. The dollar sell-off did not continue and this pair could drift lower during the Asia session.
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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
Manufacturing PMI (1:30 pm)
What can we expect from CAD today?
Canadian manufacturing activity in the previous month’s reading and another weak print can be expected later 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 12 July 2023
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Continued contraction in the US manufacturing sector caused crude prices to fall overnight as WTI oil tumbled below the $70 per barrel mark. Crude prices have found some support as WTI climbed above $70 per barrel but could run into headwinds as the day progresses
Next 24 Hours Bias
Weak Bearish
