IC Markets Asia Fundamental Forecast | 22 October 2021
What happened in the US session?
The plan to increase corporate taxes is unlikely to be included in the US reconciliation bill. The deal is expected to be sealed today.
As expected, the major currencies inherited the bias from the earlier session, with commodity currencies witnessing profit-taking, safe havens trading mixed while risk currencies saw range bound trading.
What does it mean for the Asia Session?
Profit-taking activities are likely to continue for the antipodeans against the greenback at key technical resistances going into the weekend.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Speaks, 1500 GMT
Treasury Currency Report, Tentative
What can we expect from DXY today?
Fed’s Bostic expects elevated inflation to last into 2022 and the central bank would be in a position to raise rates in the second half of next year, while counterpart Waller wants to see a reduction in the balance sheet.
Central Bank Notes:
- Tapering likely to start in November, December; end in mid-2022
- Pace of reduction is $10b in treasuries and $5b in mortgage-backed securities
- Sees one hike in 2022, three hikes in 2023
- Next meeting on 3 November
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The upcoming speech from Fed Chair Powell is likely to focus on inflation being less transitory than expected and a likely solution to combat price increases through raising rates.
Since the textbook opportunity cost of holding gold depends on real interest rate, which is the difference between nominal interest and the inflation rate, the precious metal is likely to hold its ground as the US central bank is not likely to raise rates above the inflation rate in the near term.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The latest speech from RBA Governor Lowe did not see a significant deviation from his previous comments and the directives from the central bank. The spill over rally on the Aussie, from the Kiwi, is likely to abate as traders close out for profits near a prior technical resistance with the weekend approaching.
Central Bank Notes:
- Asset purchase programme intact until February 2022
- Unlikely to raise current record low rate of 0.1% until 2024
- Next meeting on 2 November
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
With no upcoming currency-specific data releases, profit-taking from the inflation-induced rally on the Kiwi is likely to continue at a prior technical resistance zone as the weekend approaches.
Central Bank Notes:
- Official Cash Rate hiked by 25bps on 6 October, stands at 0.5%
- Will continue to reduce monetary policy stimulus
- Future moves contingent on inflation and employment.
- Next meeting on 24 November
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?
Should Fed Chair Powell reiterate the gap in the continuity between the tapering and a rate hike, the current profit-taking activities on USD/JPY is likely to continue into the weekend.
A removal of the emergency COVID loan scheme is reportedly being discussed at the Bank of Japan as infection rates in the country eases.
Central Bank Notes:
- Lowered assessment on exports and output amid supply bottlenecks in Asia
- Willing to ease monetary policy further without hesitation, if required
- Next meeting on 28 October
Next 24 Hours Bias
Weak Bullish