Dollar Slumps as U.S. Inflation Softens: Asia Market Watch

Asia session reacts to U.S. inflation softens; currencies and commodities poised for volatility and central bank actions.

U.S. Inflation Shows Further Signs of Easing in June

In June, U.S. inflationary pressures eased more than anticipated, continuing the trend observed in May. Both headline and core Consumer Price Index (CPI) readings surprised market estimates by coming in lower than forecasted on both monthly and annual bases. Headline CPI dropped from 3.3% to 3.0% year-on-year (YoY), while core CPI edged down from 3.4% to 3.3% YoY. Notably, headline CPI registered a 0.1% month-on-month (MoM) decrease, marking the first decline since May 2020.

Labor Market Signals Mixed

Unemployment claims have been rising in recent weeks, signaling potential weaknesses in the labor market, with the 4-week average increasing to 238,000. However, the latest print showed claims at 222,000, well below the forecast of 236,000 and the 4-week average, marking the lowest number in six weeks. Despite this improvement, the notable easing of consumer inflation overshadowed the labor market data.

Dollar Index Reacts to Inflation Data

Before the release of these macroeconomic data, the dollar index (DXY) was hovering around 104.90. Post-release, the DXY plunged towards 104, hitting a low of 104.07 before retracing slightly higher by the end of the session.

Implications for the Asia Session

As Asian markets digest the latest U.S. inflation data, the DXY lingered around 104.50, while spot gold prices remained elevated, trading around $2,410/oz. Overhead pressures persist for the dollar, but traders should monitor for potential retracements.

Dollar Slumps as U.S. Inflation Softens: Asia Market Watch

Key Developments and Forecasts for Major Currencies and Commodities

Dollar Index (DXY)

• Key Event: Producer Price Index (PPI) at 12:30 pm GMT
• Forecast: A potential sell-off in the greenback if June’s PPI results mirror the CPI easing.

Gold (XAU)

• Key Event: PPI at 12:30 pm GMT
• Forecast: There is potential for gold prices to rise further if the greenback weakens.

Australian Dollar (AUD)

• Key Events: No major events.
• Forecast: Trading around 0.6760 with support at 0.6750 and resistance at 0.6825. Bias: Medium Bullish.

Kiwi Dollar (NZD)

• Key Events: No major events.
• Forecast: Trading around 0.6075 with support at 0.6070 and resistance at 0.6130. Bias: Weak Bullish.

Japanese Yen (JPY)

• Key Events: No major events.
• Forecast: Trading around 159.50 with support at 157.50 and resistance at 160.30. Bias: Weak Bullish.

Euro (EUR)

• Key Events: No major events.
• Forecast: Trading around 1.0870 with support at 1.0855 and resistance at 1.0900. Bias: Medium Bullish.

Swiss Franc (CHF)

• Key Events: No major events.
• Forecast: Trading around 0.8970 with support at 0.8900 and resistance at 0.9000. Bias: Weak Bullish.

Pound (GBP)

• Key Events: No major events.
• Forecast: Trading around 1.2910 with support at 1.2895 and resistance at 1.2950. Bias: Medium Bullish.

Canadian Dollar (CAD)

• Key Events: No major events.
• Forecast: Trading around 1.3630 with support at 1.3590 and resistance at 1.3645. Bias: Weak Bearish.

Oil

• Key Events: No major events.
• Forecast: Trading around $83.40 per barrel. Despite recent gains, the market anticipates prices will experience a weekly decline. Bias: Medium Bullish.

Central Bank Notes

Federal Reserve (Fed)

• Rate: The Federal Funds Rate target ranges from 5.25% to 5.50%.
• Outlook: Highly attentive to inflation risks, with no expected rate reductions until inflation moves sustainably toward 2%.

Reserve Bank of Australia (RBA)

• Rate: Cash rate target unchanged at 4.35%.
• Outlook: Inflation is easing but remains high, with a return to the target range expected in the second half of 2025.

Reserve Bank of New Zealand (RBNZ)

• Rate: The Official Cash Rate (OCR) is unchanged at 5.50%.
• Outlook: Confident inflation will return to the target range by the second half 2024.

Bank of Japan (BoJ)

• Rate: Maintains QQE with Yield Curve Control.
• Outlook: Expectations are that Inflation will increase gradually, with economic growth projected above potential.

European Central Bank (ECB)

• Rate: Key interest rates lowered by 25 basis points.
• Outlook: The inflation outlook improved, but domestic price pressures remain intense.

Swiss National Bank (SNB)

• Rate: The central bank lowered the key policy rate to 1.25%.
• Outlook: The forecast predicts inflation at 1.3% for 2024, accompanied by moderate GDP growth.

Bank of England (BoE)

• Rate: The Official Bank Rate is maintained at 5.25%.
• Outlook: CPI inflation is expected to rise slightly in the year’s second half, with GDP growth stronger than expected.

Bank of Canada (BoC)

• Rate: Overnight rate reduced to 4.75%.
• Outlook: Inflation easing, with moderate GDP growth expected.

This overview sets the stage for a potentially volatile Asia session as markets react to the latest U.S. economic data and anticipate further developments from key central banks.

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