IC Markets Europe Fundamental Forecast | 6 June 2023
What happened in the Asia session?
The RBA raised the Cash Rate from 3.85% to 4.10%, surpassing the forecasted 3.85%, to control higher-than-desired inflation. This rate hike strengthens the Australian Dollar. The RBA’s indication of potential future tightening, based on inflation and economic developments, presents a bullish outlook for the AUD. However, this may increase the cost of borrowing and impact economic growth.
What does it mean for the Europe & US Sessions?
The AUD/USD has reached the intermediate peak at 0.6670 on the RBA surprise. Maintenance of the pullback support at 0.6640 would likely see persistent bulls advance to the round figure resistance at 0.6700.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The upcoming release of the IBD/TIPP Economic Optimism index is expected to rise from 41.6 to 45.2. The higher reading suggests increased confidence among consumers and investors, potentially attracting foreign investors and boosting demand for the USD. As a result, the currency may appreciate against other currencies.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Weak bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The recent ISM Services PMI in the US was lower than expected, hinting at a slowdown in the economy. This could weaken the USD, potentially boosting gold prices due to their inverse relationship. Given that gold is priced in USD, a weaker dollar may increase demand for gold, driving its price higher.
Next 24 Hours Bias
Weak bullish
The Australian Dollar (AUD)
Key news events today
Cash Rate
RBA Rate Statement
What can we expect from AUD today?
The Cash Rate for AUD is expected to remain at 3.85%. The Reserve Bank of Australia’s upcoming rate statement will be crucial for the AUD. If it hints at future rate cuts or economic concerns (dovish tone), it could weaken the AUD. However, it may strengthen the AUD if it suggests potential rate hikes or displays confidence in the economy (hawkish tone).
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The upcoming data release will focus on New Zealand’s ANZ Commodity Prices and the Global Dairy Trade Price Index, which fell by 1.7% and 0.9% last month. This decrease suggests weakened trade conditions, impacting the country’s economy and putting downward pressure on the NZD. Further decline could devalue the currency, while a surprising rise may stimulate its recovery.
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
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese Average Cash Earnings are forecasted to rise from 1.3% to 1.7%, potentially strengthening the JPY. However, Household Spending is expected to decrease further from -1.9% to -2.2%, which may weaken the JPY. The 30-year Bond Auction results will also influence the JPY’s position, with the previous auction yielding 1.25% and a bid-to-cover ratio of 3.5.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 15 June 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The upcoming data releases for the EUR include the German Factory Orders m/m with a forecast of 2.7% growth (previous: -10.7%) and Retail Sales m/m with a 0.2% growth (last: -1.2%). Positive surprises in Factory Orders and Retail Sales could strengthen the EUR, while disappointing data may weaken the currency.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 2023
Next 24 Hours Bias
Weak bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Today, no major news event affects the Swiss Franc. The price direction is likely to draw from previously released data. The CPI m/m figure indicated a 0.3% increase, matching the forecasted value. The previous data showed a 0.0% change. This suggests a relatively stable or strengthening economy, which could positively impact the CHF.
Central Bank Notes:
- Raised policy rate to 1.5% to counter inflationary pressure and ensure price stability. The SNB may need to raise the policy rate further in the future
- The SNB is providing liquidity assistance to Credit Suisse, and the crisis has been halted
- The new inflation forecast assumes a policy rate of 1.5% and puts average annual inflation at 2.6% for 2023 and 2.0% for 2024 and 2025.
- Mortgage and real estate market vulnerabilities persist
- Next meeting on 22 June 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 British BRC Retail Sales Monitor, with a projected and prior year-on-year growth of 5.2%, will provide insight into consumer spending. Sustained growth will likely bolster the GBP. Although slightly lower than the previous at 50.9, the Construction PMI still signals sectoral change and may not significantly impact the pound.
Finally, the 30-year Bond Auction, previously yielding 4.08 with a bid-to-cover ratio of 2.5, could influence the GBP; a higher yield might pressure the pound downward, while a solid bid-to-cover ratio could indicate confidence in the UK economy, supporting the GBP.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- 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.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The forecasted data suggests a -4.3% decline in Building Permits, which may negatively impact the CAD. However, the Ivey PMI is expected to increase to 57.2, indicating positive growth in the manufacturing sector. These contrasting figures may create uncertainty in the currency markets, with potential downward pressure on the CAD due to the decline in building permits and a possible strengthening of the CAD if the Ivey PMI exceeds expectations.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Brent and WTI, crude oil prices have surged over $1 due to Saudi Arabia’s planned production cuts, adding to the existing OPEC+ curtailments. This development, which signifies a tightening global oil supply, is expected to increase prices in the upcoming OPEC+ meeting.
Next 24 Hours Bias
Weak bullish
