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Asia Market Analysis | A Look at Key Developments and Forecasts!

In the recent US session, Jerome Powell, the Federal Reserve Chairman, presented his opening speech at the Jackson Hole Symposium, discussing “Structural Shifts in the Global Economy.” Powell emphasized the Federal Reserve’s commitment to lowering inflation to their 2% target. He also noted that GDP growth had exceeded expectations, and consumer spending remained robust. These factors indicate a likely continuation of elevated interest rates. Powell’s hawkish stance boosted the US dollar, causing the dollar index (DXY) to reach a peak of 104.45 before stabilizing around 140.20. Here is the Asia Market Analysis to see the impact.

 Asia Market Analysis – Implications for the Asia Session

At the start of the Asia session, the DXY initially declined, approaching 104.00 before finding support. The Asia market Analysis will assess Powell’s recent remarks as the trading week commences. Despite the hawkish stance, the demand for the US dollar seems subdued in the morning hours.

The Dollar Index (DXY)

The DXY might face downward pressure today, although Powell’s hawkish speech from the Jackson Hole Symposium remains a factor. The 104 level will be a crucial point to observe throughout the day.

Federal Funds Rate and Monetary Policy:

  • The federal funds rate target range is set at 5.25% to 5.50%.
  • The Committee remains committed to achieving the 2.0% inflation target.
  • Monetary policy adjustments will be made if risks emerge that hinder goal attainment.
  • Factors considered include labor market conditions, inflation pressures, expectations, and global financial developments.
  • The upcoming meeting is on September 19-20, 2023.

Gold (XAU)

Following Powell’s hawkish remarks, gold prices declined to $1,905/oz, driven by increased demand for the US dollar. Although gold slightly rebounded to $1,917/oz at the opening, it might experience further upward movement.

The Australian Dollar (AUD)

With June’s retail sales dropping by 0.8% MoM due to ongoing cost-of-living pressures, there’s a possibility of further sales slowdown, considering the contraction in the Composite index reported in the August flash PMI. The AUD began the day strongly, reaching as high as 0.6440.

Central Bank Notes:

  • The RBA has maintained the cash rate target at 4.10% for the second consecutive meeting.
  • Inflation in Australia has peaked and is decreasing, but it must return to the target range.
  • Further monetary policy tightening might be necessary.
  • The upcoming meeting is on September 5, 2023.

The New Zealand Dollar (NZD)

Similar to its regional counterpart, the NZD started the day strongly, reaching 0.5925, possibly benefiting from weakened demand for the US dollar. Monitoring the 0.5900 level is key.

Central Bank Notes:

  • The Monetary Policy Committee has maintained the OCR at 5.50% for the third consecutive meeting.
  • The Committee believes sustained high-interest rates will restore inflation within the 1% to 3% range while supporting employment.
  • Although headline inflation and expectations have decreased, the core reading remains elevated.
  • The next meeting is on October 4, 2023.

The Japanese Yen (JPY)

Japan’s unemployment rate has remained stable, and July’s reading is likely to fall within a similar range as June’s. Following the surge in USD demand, USD/JPY reached 146.60, and a retest of this level could occur today.

Central Bank Notes:

  • The Bank of Japan continues the QQE with a Yield Curve Control strategy to achieve the 2.0% price stability target.
  • The Bank has implemented yield curve control, maintaining a negative interest rate of -0.1% and targeting a 10-year JGB yield of around +0.5%.
  • Inflation is expected to temporarily decelerate before picking up due to improvements in the output gap and inflation expectations.
  • Japan’s economy is projected to gradually recover.
  • The next meeting is on September 22, 2023.

The Euro (EUR)

After hitting a low of 1.0770, the EUR rebounded and is currently trading above 1.0800. It might experience further upward movement.

Central Bank Notes:

  • The ECB raised the three key interest rates by 25 basis points.
  • Economic growth projections have been slightly adjusted.
  • Interest rates will be maintained at sufficiently restrictive levels to achieve the inflation target.
  • Rate decisions will be data-dependent, considering various factors.
  • The next meeting is on September 14, 2023.

The Swiss Franc (CHF)

Following a jump to 0.8880 and a subsequent pullback in USD/CHF, the currency pair is trading under 0.8840.

Central Bank Notes:

  • The SNB has further tightened monetary policy, increasing the policy rate to 1.75%.
  • Inflation forecasts predict an average annual rate of 2.2% for 2023 and 2024.
  • Modest growth is projected for the year, influenced by subdued foreign demand and inflation.

The British Pound (GBP)

As the UK markets are closed for a bank holiday, lower trading volume is expected during European hours. Despite this, the Pound started the day strongly, surpassing 1.2600 as Asia markets opened.

Central Bank Notes:

  • The Bank of England’s MPC raised the Bank Rate by 0.25 percentage points to 5.25%.
  • CPI inflation is anticipated to decrease significantly by the year’s end.
  • Inflation projections show a decline to 2.0% and 1.9% at two and three-year horizons respectively.
  • The next meeting is on September 21, 2023.

The Canadian Dollar (CAD)

Following the USD surge, USD/CAD reached 1.3640 and retreated to trade below 1.3600. The currency pair could continue to slide.

Central Bank Notes:

  • The Bank of Canada raised the overnight rate target to 4.75%.
  • GDP growth for Q1 2023 exceeded expectations at 3.1%.
  • CPI inflation is expected to ease to about 3.0%, though concerns about surpassing the 2.0% target remain.
  • The next meeting is on September 6, 2023.

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