FOMC Market News

Weekly Outlook: USD lower ahead of FOMC Minutes, RBNZ ready for a Rate Hike

Despite the calm market opening, traders will be waiting for major events during the week. The Federal Reserve and RBA will be releasing policy meeting minutes, while the Reserve bank of New Zealand is set to raise interest rates. On the economic data front, important releases on the economic calendar include US retail sales, Canada and UK inflation data, Eurozone Q2 GDP, and Australia labor market data.

FOMC Minutes on top of the US Calendar 

The greenback has traded lower, burdened by disappointing sentiment data which showed that consumer sentiment slumped to its lowest levels since 2011. The drop also was described as the 6th sharpest drop in sentiment levels during the past 50 years. The USD was overwhelmed by the negative data at the end of last week, and despite the positive inflation data that paves the way for policy tightening. 

FOMC Market News

The inflation rate stabilized at 5.4% in July, unchanged from the previous month’s 13-year high and slightly above market expectations of 5.3%. The inflationary pressures reflect the effect caused by the coronavirus crisis, the re-opening of the economy, and continued supply constraints. 

This week, traders will be waiting for the FOMC minutes on Wednesday for further clarification on the next monetary policy steps. 

During its July meeting, the Federal Reserve left monetary policy unchanged, while signaling a possible reduction in asset purchases soon amid signs of a solid recovery in the US labor market and temporary inflationary pressure, and despite the growing threats of the Delta variant. 

Another awaited driver for the US dollar is Fed Chair Jerome Powell’s speech at an online town hall event. Economic data scheduled for this week are the retail sales that are expected to point to a decline in domestic trade and consuming levels. Forex traders are required to learn more about reserve currency and how it impacts trading.

RBNZ to raise Interest Rate as Economy Recovers

The Reserve bank of New Zealand is scheduled to hold its August meeting on Wednesday. A 25 basis point rate hike is fully priced in for the upcoming meeting, with another one expected later in November. That’s why the market and NZD reaction will depend on the statement’s forward guidance rather than the decision itself. 

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The RBNZ will be releasing its monetary policy statement as well, which will include the bank’s updated economic forecasts and expected rate path. The decision will be followed by a press conference for the RBNZ Governor. 

The New Zealand economy has been showing a solid recovery this year, after facing a severe recession in 2020 affected by the Covid-19 pandemic. Major economic data support the view that the local economy has managed to overcome the negative impacts of the pandemic. The unemployment rate fell to a one-year low of 4% in Q2, while annual inflation soared to 3.3% in Q2 exceeding the target range between 1-3%. Learn more about inflation: How Inflation affects Currencies?

Aussie awaits RBA Minutes and Employment Data 

Aussie traders will be watching the RBA’s meeting minutes for any clues about the policy paths in the upcoming months. The Reserve Bank of Australia kept interest rates unchanged at a record low of 0.1% during its August meeting. 

The policy statement acknowledged that the economic recovery has been stronger than was earlier expected. However, the recent COVID-19 outbreaks were interrupting the recovery, and GDP is expected to decline in Q3, it added. 

The bank reiterated it will not increase interest rates until inflation is within the 2 to 3% target range, a condition that will not be met before 2024.

Employment figures for July will be out on Thursday. Expectations refer to 45K job losses, for the first time in 2 months, with an uptick in the unemployment rate to 5.0% from 4.9% previously. 

Inflation Figures Eyed for the GBP

Employment data for June will be released on Tuesday, ahead of inflation figures for July on Wednesday followed by retail sales on Friday.  Annual inflation is expected to rise by 2.3% in the year ending July 2021, retreating from 2.5% back in June. The core inflation index is set to fall back from 2.3% to 2.1% as well. 

The Bank of England left policy unchanged during its August meeting, with policymakers reiterating that they do not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. 

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