IC Markets Asia Fundamental Forecast | 7 November 2023
What happened in the US session?
It was an empty calendar during the US session with no major economic news to provide a catalyst for the forex majors. The dollar index (DXY) hit a low of 104.85 before trading around 105.16 by the end of the US session. Meanwhile, spot gold prices hit a low of $1,977.23/oz overnight.
What does it mean for the Asia Session?
All eyes will be on the Reserve Bank of Australia’s (RBA) monetary policy announcement where they are widely expected to raise their cash rate by 25 basis points to bring it up to 4.35%. This would mark the first cash rate increase in five meetings as retail sales remain strong and inflation accelerated from 4.9% YoY in July to 5.6% YoY in September. If the RBA statement communicates a hawkish outlook along with the cash rate hike, this would create strong tailwinds for the Aussie.
The Dollar Index (DXY)
Key news events today
FOMC Member Waller Speaks (3:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Governor Christopher Waller will be delivering a speech titled “Using Economic Data to Understand the Economy” at the Federal Reserve Bank of St. Louis Conference where audience questions are expected. His statements and remarks will be closely watched as they could provide further insights into the outlook for monetary policy following last week’s FOMC meeting. Any further neutral remarks are likely to function as a bearish catalyst for the DXY.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the second meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- Next meeting runs from 12 to 13 December 2023.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
FOMC Member Waller Speaks (3:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Governor Christopher Waller will be delivering a speech titled “Using Economic Data to Understand the Economy” at the Federal Reserve Bank of St. Louis Conference where audience questions are expected. His statements and remarks will be closely watched as they could provide further insights into the outlook for monetary policy following last week’s FOMC meeting. Any further neutral remarks are likely to function as a bearish catalyst for the greenback and thus potentially provide a lift to gold prices.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Statement (3:30 am GMT)
What can we expect from AUD today?
All eyes will be on the Reserve Bank of Australia’s (RBA) monetary policy announcement where they are widely expected to raise their cash rate by 25 basis points to bring it up to 4.35%. This would mark the first cash rate increase in five meetings as retail sales remain strong and inflation accelerated from 4.9% YoY in July to 5.6% YoY in September. If the RBA statement communicates a hawkish outlook along with the cash rate hike, this would create strong tailwinds for the Aussie.
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
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi is likely to take direction from its Pacific neighbour today as the RBA is expected to hike their cash rate by 25 basis points to bring it up to 4.35%. A hawkish RBA statement could also cause the Kiwi to rise strongly today.
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
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With no major news overnight, USD/JPY hit a high of 149.37 before trading around 149.86 by the end of the US session. This currency pair is expected to become bullish as it has broken past a pullback resistance earlier today.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Medium- to long-term inflation expectations have risen moderately. Even as actual inflation decelerates, inflation expectations are expected to rise moderately toward the end of the projection period, with the output gap turning positive and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations. This will likely lead to a sustained rise in prices accompanied by wage increases.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 December 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Germany Industrial Production (7:00 am GMT)
What can we expect from EUR today?
Industrial production in Germany, which is the economic powerhouse of the Eurozone, has declined over the past four months as evident in the recent PMI reports. September’s estimate of -0.3% points to another month of decline for this sector and a weaker-than-expected reading could potentially weigh on the Euro.
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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
Foreign Currency Reserves (8:00 am GMT)
What can we expect from CHF today?
Switzerland’s foreign currency reserves have been dwindling since the middle of last year as the Swiss National Bank (SNB) attempted to prop up the value of its currency in its fight against inflation. Reserves fell to CHF678.5B in September and a further reduction in October could point to stronger franc and add further downward pressure on USD/CHF.
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?
With no major news overnight, the Pound hit a high of 1.2428 before trading around 1.2372 by the end of the US session. This currency pair is expected to show signs of bearish movement today as it is approaching a pullback support level. Breaking the pullback support level would mean that there will be further downward movement.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2.
- This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
Trade Balance (1:30 pm GMT)
What can we expect from CAD today?
Canada posted a trade surplus of CAD$0.7B in August which was its first surplus since April. September’s estimate of CAD$1.0B points to another month of growing surplus which could potentially lift the Canadian dollar and thus drive UDS/CAD lower.
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
Strong Bullish
Oil
Key news events today
API Weekly Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
API stockpiles have declined in the last two out of three weeks which usually signals relatively stronger demand for crude oil in the US. A larger-than-expected drawdown could provide a much-need boost to prices in the near-term.
Meanwhile, crude prices dropped overnight with WTI oil hitting a high of $82.20 before trading around $81.47 per barrel by the end of the US session.
Next 24 Hours Bias
Medium Bearish
