IC Markets Europe Fundamental Forecast | 7 March 2023
What happened in the Asian session?
The RBA has raised the cash rate to 3.60%, as expected. Its priority remains to return inflation to the 2-3% target range, and further tightening of monetary policy is expected to be necessary. RBA Governor Lowe will speak at the Australian Financial Review Business Summit tomorrow.
The JPY 30-year Bond Auction had a yield of 1.42|3.0 and 1.54|3.3 for the bid-to-cover ratio. This data indicates a slight increase in yield from the previous auction.
China’s Trade Balance data released was 810B, significantly higher than the previous data of 550B and the forecasted data of 572B.
What does it mean for the Europe & US Sessions?
The AUD will likely weaken against the EUR and the USD, where the respective central banks remain hawkish on the rate hike trajectory. The upcoming testimony of Fed Chair Powell during the Semi-Annual Monetary Policy Report before the Senate Banking Committee may jolt the US dollar to outperform.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Testifies
What can we expect from DXY today?
Powell’s testimony may impact the USD as his remarks could reveal intentions for a more aggressive rate increase due to the stubborn inflation. A hawkish stance strengthens the USD, while a dovish one weakens it.
Central Bank Notes:
- The Committee has raised the federal funds rate target range to 4.5-4.75% and plans to continue increasing it to return inflation to 2%
- The Committee will monitor incoming information and adjust the stance of monetary policy as appropriate to achieve its goals
- A majority vote from the Committee supported the decision to raise the target range
- Next meeting is on 23 March 2023
Next 24 Hours Bias
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Higher Swiss CPI (0.7% m/m) reflects that global inflation may persist longer than expected. This development may lead to increased demand for gold as a hedge against inflation, impacting the value of gold.
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?
RBA to release Cash Rate decision and Rate Statement. The current rate is at 3.35%. The market forecasts a 25bps increase to 3.60%. If the rate increase is higher, AUD could benefit. Moreover, any language shift in RBA’s stance towards hawkish could positively impact AUD.
Central Bank Notes:
- Cash rate stands at 3.35%
- Future rate rises are expected as RBA targets the 2-3% inflation target
- Next meeting on 7 March 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?
NZD may be impacted by the upcoming Global Dairy Trade (GDT) Price Index, which declined by 1.5%. Another negative figure would indicate sustained lower demand for NZ’s dairy products and could lead to a weaker NZD.
Central Bank Notes:
- Monetary Policy Committee increased the OCR from 4.25% to 4.75%
- Higher interest rates are needed to reduce inflation and support employment sustainably
- Severe storms in North Island will increase inflation and disrupt production.
- Next meeting is on 5 April 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?
The upcoming 30-year bond auction data release will likely impact the JPY. In the past, strong demand for Japanese government bonds (JGBs) has strengthened the JPY as investors see Japanese government debt as a safe-haven asset, while weak demand has weakened the currency.
Central Bank Notes:
- Cash rate stands at -0.1%
- Expanded range for 10-year JGB yield fluctuations to 0.5%
- Next meeting is on 8 March 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
German Factory Orders m/m is today’s leading data release for the EU economy. The forecasted -0.6% is lower than the previous 3.2%. If the actual data matches the forecast, the Euro may weaken.
Central Bank Notes:
- Main Refinancing Rate is currently at 3.00%
- ECB Governing Council to continue raising interest rates and reducing holdings of securities
- Future policy decisions to be data-dependent
- Next meeting on 16 March 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?
The forecasted CHF Unemployment Rate of 1.9% is expected to remain the same as the previous data, indicating a stable labour market. Similarly, the last Foreign Currency Reserves data of 784 billion CHF showed a solid financial position for Switzerland. This could further bolster the CHF’s value if the upcoming release remains in favour.
Central Bank Notes:
- Current policy rate is at 1.00%
- Next meeting on 23 March 2023
Next 24 Hours Bias
Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
UK’s upcoming release of Halifax HPI m/m is forecasted to decline by 0.3%, compared to the previous data of 0.0%. This may negatively impact the GBP in the short term, indicating a slowdown in the housing market and potentially lowering demand for GBP.
Central Bank Notes:
- MPC voted to increase Bank Rate by 0.5 percentage points to 4%
- Near-term data developments are crucial in assessing how quickly external and domestic inflationary pressures will abate
- MPC’s updated projections show CPI inflation falling back sharply from its current level
- Next meeting on 23 March 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?
All eyes should be on the BoC rate decision on Wednesday. Meanwhile, the latest lower-than-expected Ivey PMI at 51.6 (previous 60.1) should entertain the bears.
Central Bank Notes:
- Increased rates to 4.50%; indicated pause of future rate hikes
- Inflation in Canada is projected to drop to around 3% in the middle of 2023
- Goal is to reach the 2% inflation target by 2024
- Next meeting on 8 March 2023
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Lower demand from China, the world’s largest oil consumer, due to a growth target of only 5% in 2023 could result in a decline in oil prices and a slowdown in oil production, with ripple effects on oil-producing countries and the global economy.
Next 24 Hours Bias
Weak Bearish
