IC Markets Asia Fundamental Forecast | 30 October 2023
What happened in the US session?
The PCE Price Index rose 0.4% MoM in September, higher than the estimate of 0.3%, while the annualised reading remained unchanged at 3.4% YoY. The PCE Price Index – which is the Federal Reserve’s preferred measure of inflation – continues to moderate but at a slower pace.
Meanwhile, the final results of the Consumer Sentiment survey by the University of Michigan showed inflation expectations rising from 3.2% YoY in September to 4.2% YoY in October. This marked the highest reading since May, reflecting the ongoing concerns surrounding inflation.
The dollar index (DXY) hit a high of 106.80 last Friday before reversing strongly to drop as low as 106.32 before closing out the week at 106.58. This pullback in the DXY can be attributed to the month-end portfolio rebalancing by major institutions and asset managers.
What does it mean for the Asia Session?
Retail sales in Australia surprised to the upside by increasing 0.9% MoM in September, accelerating sharply from 0.3% in the previous month. This was the third consecutive month of growth in sales and the strongest pace since January. Today’s stronger-than-expected sales figures could provide the necessary boost for the Aussie as it raced towards 0.6350 following this news release.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
Last Friday’s month-end flows dominated the direction of the DXY as major institutions and asset managers reduced their long US dollar positions. However, with inflation moderating at a slower pace as observed in the recent PCE Price Index and inflation expectations from the University of Michigan’s Consumer Sentiment survey remaining high, demand for the greenback could resume in the latter part of the day and nudge the DXY higher.
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
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Last Friday’s month-end flows dominated the direction of the DXY as major institutions and asset managers reduced their long US dollar positions. However, with inflation moderating at a slower pace as observed in the recent PCE Price Index and inflation expectations from the University of Michigan’s Consumer Sentiment survey remaining high, demand for the greenback could resume in the latter part of the day and nudge the DXY higher – thus potentially drive gold prices lower.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Retail Sales (12:30 am GMT)
What can we expect from AUD today?
Retail sales in Australia surprised to the upside by increasing 0.9% MoM in September, accelerating sharply from 0.3% in the previous month. This was the third consecutive month of growth in sales and the strongest pace since January. Today’s stronger-than-expected sales figures could provide the necessary boost for the Aussie as it raced towards 0.6350 following this news release.
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?
The Kiwi gapped higher at 0.5809 to rise strongly towards 0.5860. It was one of the strongest performing currencies at today’s market open and is likely to remain elevated for the rest of the day.
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
Retail Sales (11:50 pm GMT)
What can we expect from JPY today?
Retail sales in Japan increased 7% YoY in August, exceeding the forecast of 6.6%. It was the 18th consecutive month of expansion in sales and the fastest pace since February. Consumption continues to recover and the estimate for September points to another month of stronger sales figures. USD/JPY opened strongly at today’s open to rise towards 149.80 and could edge higher as the day progresses.
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
Weak Bullish
The Euro (EUR)
Key news events today
Germany GDP (9:00 am GMT)
Germany CPI (9:00 am GMT)
What can we expect from EUR today?
The preliminary data for GDP and CPI for Germany will be released today. With the PMI activity for Europe’s powerhouse deteriorating over the last few months, GDP figures are expected to be weak. The only positive from a weakening economy has been the continued easing of inflationary pressures in Germany. The Euro is likely to come under pressure today.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged.
- Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.
- The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 14 December 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?
Despite demand for the greenback fading last Friday, USD/CHF remained above the key 0.9000-threshold. This currency pair gapped lower at today’s open but it reversed strongly to bounce as high as 0.9030 and is likely to remain elevated today.
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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound gapped slightly higher to open at 1.2126 before reversing to slide lower. If it breaks under the key 1.2100-threshold today, further downside pressures could build. Otherwise, the Pound could bounce off this level to edge higher.
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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Canadian dollar showed significant strength this morning causing USD/CAD to gap lower at 1.3855 but it retraced higher before resuming the downward slide. This currency pair could edge lower as the trading day progresses.
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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices slipped at the open as worries about global demand outweighed the risks to supply from the Middle East, at least for the present moment. WTI oil tumbled as low as $83.43 and is likely to remain under pressure for the initial part of the day.
Next 24 Hours Bias
Medium Bearish
