IC Markets Asia Fundamental Forecast | 18 October 2023
What happened in the US session?
Retail sales in the US rose 0.7% MoM in September as the latest data continues to point towards robust consumer spending despite high prices and elevated borrowing costs. Not only did sales print stronger than the estimate of 0.3%, the figure for August was also revised up from 0.6% to 0.8% MoM.
Meanwhile, industrial production grew 0.3% MoM in September, coming higher than the estimate of 0% but the previous month’s growth was revised lower from 0.4% to 0%. Manufacturing output, which accounts for 78% of total production, rose 0.4% MoM, above the forecast of a 0.1% increase. Overall, the above data highlights the resilience of the US consumer as well as relatively strong industrial production for the month of September.
Following the press release of retail sales, the dollar index (DXY) surged from 106.20 to 106.52 but the jump was short-lived as it tumbled hard to erase all the initial gains. The DXY fell within a whisker of 106.00 by the end of the US session as neutral comments by Federal Reserve Bank of Richmond President Tom Barkin caused the initial demand for the greenback to fade.
What does it mean for the Asia Session?
Industrial production in China rose by 4.5% YoY in August, beating the forecast of 3.9% and was also higher than July’s print of 3.7%. It was the strongest expansion in industrial output since April, following recent support measures from Beijing to bolster economic recovery. Another round of stronger-than-expected production figures for the month of September could function as a bullish catalyst for crude oil – WTI oil traded around $86.50 per barrel early this morning.
The Dollar Index (DXY)
Key news events today
FOMC Member Waller Speaks (4:00 pm GMT)
FOMC Member Bowman Speaks (5:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Governor Christopher Waller is due to speak about the economic outlook at the Distinguished Speaker Seminar hosted by the European Economics and Financial Centre in London where audience questions expected while another Governor, Michelle Bowman, will be delivering her opening remarks at the Fed Listens event hosted by the Federal Reserve Bank of Richmond. Should both these governors follow in the footsteps of Fed Presidents Patrick Harker’s and Tom Barkin’s neutral remarks on Monday and Tuesday respectively, the US dollar could come under significant pressure once more.
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
Medium Bearish
Gold (XAU)
Key news events today
FOMC Member Waller Speaks (4:00 pm GMT)
FOMC Member Bowman Speaks (5:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Governor Christopher Waller is due to speak about the economic outlook at the Distinguished Speaker Seminar hosted by the European Economics and Financial Centre in London where audience questions expected while another Governor, Michelle Bowman, will be delivering her opening remarks at the Fed Listens event hosted by the Federal Reserve Bank of Richmond. Should both these governors follow in the footsteps of Fed Presidents Patrick Harker’s and Tom Barkin’s neutral remarks on Monday and Tuesday respectively, the US dollar could come under significant pressure once more and result in higher gold prices later today.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie is one of the strongest performing currencies this morning as it rises towards 0.6380 – a level that has acted as quite a significant resistance zone this week. Should the Aussie break above this level, it could continue to climb above the key 0.6400-threshold.
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?
Along with the Aussie, the Kiwi is one of the strongest performing currencies this morning as it rose above the key 0.5900-threshold. The bullish momentum could carry the Kiwi as high as 0.5930 – a level that has functioned as a relatively significant resistance zone this week.
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
Trade Balance (11:50 pm GMT)
What can we expect from JPY today?
Japan’s trade deficit decreased sharply to ¥931B in August from ¥2,790B in the same month a year earlier. Exports fell by 0.8% YoY to ¥7,994B which was the second consecutive month of decline amid weak foreign demand, particularly from China. Another month of widening deficit is likely to depress the yen even more and potentially cause USD/JPY to climb higher.
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 Bearish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT)
What can we expect from EUR today?
The final Consumer Price Inflation (CPI) for the Eurozone will be released today. With the flash reading for September coming in at 4.3% YoY, the final print should not deviate much. A weaker-than-expected CPI reading could function as a bearish catalyst for the Euro.
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 is on 26 October 2023.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After hitting a high of 0.9030 during the US session, USD/CHF tumbled under the key 0.9000-threshold in early Asian trading hours. This threshold has functioned as a significant support level since last Thursday but a clean break underneath it could trigger the next leg down for this currency pair.
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
Medium Bearish
The Pound (GBP)
Key news events today
CPI (6:00 am GMT)
What can we expect from GBP today?
Consumer Price Inflation (CPI) in the UK eased to 6.7% YoY in August, down from 6.8% YoY in the previous month. This reading was lower than the market consensus of 7.0% and also marked the lowest rate since February 2022. This drop was primarily due to a slowdown in food inflation and a decline in the cost of accommodation services. September’s estimate of 6.6% YoY points to another month of slower inflation and could add downward pressure on the Pound during the European session.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Stronger-than-expected retail sales figures in the US caused USD/CAD to surge above 1.3700 overnight but the move was short-lived. With crude oil prices surging over concerns of further escalation in the Middle East, demand for the Canadian dollar has also picked up prompting USD/CAD to fall under 1.3650 this morning.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting is on 25 October 2023.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
China Industrial Production (2:00 am GMT)
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Industrial production in China rose by 4.5% YoY in August, beating the forecast of 3.9% and was also higher than July’s print of 3.7%. It was the strongest expansion in industrial output since April, following recent support measures from Beijing to bolster economic recovery. Another round of stronger-than-expected production figures could function as a bullish catalyst for crude oil.
Crude oil gained strongly overnight as fears surrounding an escalation in the ongoing Middle East conflict lifted prices with WTI oil climbing above the $87.00 per barrel mark. Following yesterday’s surprise drawdown in API stockpiles, another round of higher-than-expected draw for the EIA inventories could function as an additional bullish catalyst for crude prices during the US session.
Next 24 Hours Bias
Medium Bullish
