Last week,
as anticipated, the RBA hiked interest rates by 25bps. Meanwhile, the labor
market data for the United States printed below expectations, indicating that
the market conditions are easing. Analysts are now projecting a 25bps hike at
the next FOMC meeting later this month.
The current
week is anticipated to be relatively quiet in terms of significant economic
events. but there are few noteworthy events on the horizon that are likely to
impact the FX market.
On Monday,
the BoE Governor, Mr. Bailey, will deliver a speech at the Financial and
Professional Services Dinner in London, focusing on important matters related
to the economy. Tuesday we’ll get several key economic indicators for the
United Kingdom, including the Claimant Count Change, the average earnings index
for a three-month period, and the unemployment rate. Additionally, the German
ZEW Economic Sentiment data will be released, providing insights into the
economic outlook of the eurozone.
On
Wednesday, New Zealand’s official cash rate and the RBNZ Rate Statement will be
announced. Furthermore, in Australia, RBA Governor Lowe will deliver a speech
titled “The Reserve Bank Review and Monetary Policy” at the Economic
Society of Australia Business Lunch in Brisbane.
The most
eagerly awaited event of the week is the release of inflation data for the
United States on Wednesday. This information is highly significant and closely
monitored by market participants. The BoC will also make its monetary policy
announcement on the same day.
Thursday we’ll get the U.S. Core Producer Price Index (PPI) m/m, the overall
PPI month-on-month, and the unemployment claims data. Finally, on Friday, the
U.S. will publish the Preliminary University of Michigan (UoM) Consumer
Sentiment Index and the Preliminary UoM Inflation Expectations.
Throughout
the week some Fed members are expected to deliver their remarks, and their
opinions will likely be closely followed by market participants and analysts.
The unemployment rate for the U.K. is likely to remain at 3.8% while the
average earnings index 3m/y is expected to rise from 6.5% to 6.8%. This data
will be monitored by the BoE and will be used along with the next CPI print to
decide whether the next rate hike will be of 25 or 50bps.
At this
week’s meeting, the RBNZ is likely to maintain the Official Cash Rate at 5.5%.
The Bank hiked the rate last time in May by 25bps, which was seen as a dovish
move by the market, and since then it refrained from signaling further hikes.
Governor Orr stressed that current rates are restrictive enough and above
neutral. In New Zealand inflation and the economic growth are below
expectations with the GDP data suggesting the economy dipped into a
recession.
Overall,
inflation data for the U.S. economy showed signs of cooling down over the last
few months, but it is still above the Fed’s target which means the tightening
cycle might not be over yet. The consensus for headline inflation in June is
for a modest rise while expectations for the Core CPI are for a drop as a
consequence of declining core goods prices.
The
consensus for the next BoC meeting is for a 25bps rate hike. As a reminder,
after a pause, the Bank decided to resume its tightening cycle to fight what it
perceived as persistent levels of inflation and a resilient demand. The Bank
left the door open for further tightening, but since then inflation showed
signs of cooling down and the economy added a significant number of jobs in
June, well above the consensus. The unemployment rate rose from 5% to 5.4%.
At this
week’s meeting traders will be watching for any hints on future rate hikes and
if the BoC continues with its hawkish tone the CAD is expected to strengthen in
the near future.
The U.S.
Core PPI m/m is expected to print 0.2% and the PPI m/m likely to come in at 0.2%
from a prior -0.3%. Even if producer prices softened lately, with food and
transportation services prices declining the most, it might take a while for
this trend to also reflect in consumer prices.
Last month
the consumer sentiment index reflected that consumers are quite optimistic
about the outlook of the economy. The index rose from 59.2 to 64.4. Due to the
fact that prices also started to stabilize, consumer expectations for inflation
also eased. The consensus for the Prelim UoM Consumer Sentiment is 65.5. Wells
Fargo analysts expressed caution in concluding “that consumer spending
will strengthen amid the improvement in sentiment, as these data have not
always been the most reliable predictor of consumer spending. Before the recent
uptick, sentiment had been in broad decline over the past two years, while
consumer expenditures have gradually climbed higher over the same period.”
This article was written by Gina Constantin.