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Asia Financial Update: US Session Insights and Market Trends

Asia financial update The US session saw the Empire State Manufacturing Index rise and DXY trading while the FOMC meeting looms. Implications for gold, AUD, NZD, JPY, EUR, CHF.

Key Points

  • Empire State Manufacturing Index Surges: The US session witnessed a sharp rise in the Empire State Manufacturing Index, indicating increased new orders and shipments.
  • DXY’s Stability Amid FOMC Focus: The Dollar Index (DXY) held steady around 105.30 as markets reopened, with focus on the upcoming FOMC meeting and strong demand for the US dollar.
  • Currency Market Outlook: Gold seeks to break resistance, while AUD, NZD, JPY, EUR, and CHF face uncertainty due to central bank decisions and economic data.

Asia Financial Update-What happened in the US session?

General business conditions for the Empire State Manufacturing Index rose by 21 points to 1.9 in September as new orders and shipments increased. However, the increases in input and selling prices continue to pick up pace. Meanwhile, the preliminary results of the University of Michigan’s Consumer Sentiment survey remained flat in September as consumers, as a whole, continue to be relatively tentative about the direction of the US economy. In addition, consumers have also taken note of the stalling slowdown in inflation, but they do expect the slowdown to resume eventually. The dollar index (DXY) ranged between 105.15 and 105.40 last Friday after surging strongly the day before on a combination of a higher US CPI reading, weaker-than-expected unemployment claims figures, and a neutral outlook by the ECB following their monetary policy decision on the 14th.

What does it mean for the Asia Session?

The DXY traded around the 105.30 level as markets re-opened today. With all eyes on Federal Reserve Chairman Jerome Powell and the upcoming FOMC meeting this week, demand for the US dollar is likely to remain strong, but there could be pullbacks in the initial part of the new trading week.

The dollar Index DXY today?

The DXY traded around the 105.30 level as markets re-opened today. With all eyes on Federal Reserve Chairman Jerome Powell and the upcoming FOMC meeting this week, demand for the US dollar is likely to remain strong, but there could be pullbacks in the initial part of the new trading week.

Central Bank Notes

The federal funds rate target range will be 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 labor market conditions, inflation pressures, inflation expectations, and international and financial developments. The next meeting runs from 19 to 20 September 2023. Next 24 Hours Bias: Weak, Bullish

Gold (XAU)

Gold prices opened at $1,923/oz this morning to climb towards $1,930 – a level where the price has run into significant resistance since early September. Should demand for the US dollar wane at the beginning of the new trading week, gold could finally push above this key short-term resistance level. Next 24 Hours Bias: Weak, Bullish

The Australian Dollar (AUD)

The Aussie rose strongly this morning to initially climb as high as 0.6445. It sold off quite sharply last Friday, and the downturn could resume this week, especially with the upcoming FOMC meeting running from the 19th to the 20th of September.

Central Bank Notes

The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting. Inflation in Australia has passed its peak and is trending lower but needs to return to the target range. Further tightening of monetary policy may be necessary. The next meeting is on 3 October 2023. Next 24 Hours Bias: Weak Bearish

The Kiwi Dollar (NZD)

The Kiwi opened strongly this morning to initially climb as high as 0.5920. It has ranged between 0.5890 and 0.5940 for most parts of last week, and it could continue to trade within this range today.

Central Bank Notes

The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row. The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment. Headline inflation and inflation expectations have declined, but the core reading remains too high. The next meeting is on 4 October 2023. Next 24 Hours Bias: Weak Bearish

The Japanese Yen (JPY)

With strong demand for the US dollar last week, USD/JPY broke above the key short-term resistance level at 147.80. However, this currency pair gapped lower this morning to open at 147.66 and could drift lower today.

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%. Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations. Japan’s economy is expected to recover gradually. The next meeting is on 22 September 2023. Next 24 Hours Bias: Weak, Bullish

The Euro (EUR)

The Euro notched a ninth consecutive week of losses as markets interpreted the latest monetary policy statement by the ECB and President Christine Lagarde’s press conference that this central bank has concluded its tightening cycle, which triggered the Euro to sell off aggressively on the 14th of September. With the FOMC meeting being the most important economic event this week, further downward pressure on the Euro can be expected.

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. The next meeting is on 26 October 2023. Next 24 Hours Bias: Weak Bearish

The Swiss Franc (CHF)

USD/CHF gapped lower this morning to open at 0.8945 but then proceeded to rise as high as 0.8977. With the Swiss National Bank releasing its monetary policy statement this week along with the Federal Reserve, higher volatility for this currency pair is all but certain.

Central Bank Notes

SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%. The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher. 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 GDP is projected to grow around 1

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