All eyes on US inflation, retail sales & consumer confidence
On Tuesday we have the release of US inflation, while on Thursday we get retail sales. Finally, at the end of the week, investors will turn their attention to the release of the consumer confidence index. All this data is especially crucial as they will provide further insights into the health of the US economy and whether the central bank has room to cut rates further.
Expected Outcomes: Following concerns about emergency Fed cuts, markets will be cautious with this week’s upcoming US data. While the Fed may have calmed market concerns regarding interest rate cuts, if the data shows further signs of economic weakness, it could impact investor sentiment. This is why US CPI, retail sales and consumer sentiment will be closely watched and scrutinised, especially if consumer spending and sentiment disappoint.
Impact on the FX market and currencies: If US inflation data comes in softer, as it is expected, it will weigh on the US dollar. However, if retail sales and sentiment come in line with forecasts, it will create uncertainty over how many more rate cuts the Fed will have to deliver over the next year, which could also weaken the USD.
Australian wages and employment figures in the spotlight
On Tuesday, we note the release of wage price index and on Thursday, we highlight the release of employment figures. Particularly, the release of the Employment Change by the Australian Bureau of Statistics is crucial as an increase is seen as positive for consumer spending, economic growth, and is supportive of the Australian dollar (AUD). On the other hand, a low reading could weigh on the AUD.
Expected Outcomes: The RBA’s hawkish stance has disappointed those who anticipate a rate cut in November. Nonetheless, the cash rate futures contract indicates a 50% chance of a rate cut at the next RBA meeting, and another cut fully priced in by January. The 1-month OIS sees a 12% chance of a rate cut, but the entire OIS curve is below the cash rate as most traders do not expect a rate hike by the RBA.
However, if wages and employment figures come in higher than expected, the RBA will have less room to even consider a rate cut and will maintain a hawkish tone.
Impact on the FX market and currencies: Hotter-than-expected figures will keep the RBA hawkish and support the AUD.
Will the RBNZ signal further cuts?
On Wednesday we have the Reserve Bank of New Zealand’s (RBNZ) interest rate decision and policy statement. If economic developments are positive and the outlook optimistic, the RBNZ will have room to tighten policy by hiking interest rates, which is positive news for the New Zealand dollar. The policy announcement will be followed by Governor Adrian Orr’s press conference.
Expected Outcomes: The RBNZ took markets by surprise two meetings ago when it talked about rate hikes, but in the coming week’s meeting markets expect a 25bp rate cut. Swap markets show that there is a 75% probability of a cut after the recent inflation survey which showed that 1 and 2-year CPI expectations have met the central bank’s 1-3% inflation target at 2.4% and 1% correspondingly. CPI has also eased and dropped to 3.3% y/y. A rate cut may be good news for Australia which is trying to avoid another rate hike, since a dovish RBNZ will allow the RBA to avoid the pressure to hike.
Impact on the FX market and currencies: A rate cut as well as the potential of signalling further rate cuts could weigh on the New Zealand dollar.
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