Weekly Market Outlook

Weekly Market Outlook: CPI Data Highlight the Calendar

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Weekly Market Outlook – Quite a calm trading week with the absence of major economic events. Market participants will be focusing on RBA’s meeting minutes on Tuesday, followed by governor Phillip Lowe’s speech about inflation looking for further hints about monetary policy path. Another CPI round will take place this week with British and Canadian CPI in focus.

AUD Lower ahead of RBA’s Meeting Minutes

The Australian dollar remained under pressure against the US dollar on Friday, weighed by the widened policy gap. The Reserve Bank of Australia will be publishing the November meeting minutes on Tuesday morning, which is expected to reveal more clues about rate hike timeline following the decision to drop the three-year yield target.

The bank discontinued the 0.1% yield target on April 2024 government bond during its November meeting. The board also dismissed its prior statement that rates were unlikely to rise until 2024. These actions reflected the bank’s shift to a hawkish stance, fueling expectations for a sooner rate hike. 

The central bank kept the cash rate on hold at a record low of 0.1% for the 12th month in a row, and maintained buying government bonds at its current weekly pace of A$4 billion until at least mid-February 2022.The RBA noted the decision to terminate the yield target reflects the economic improvement and the earlier-than-expected progress over the inflation target.

Meanwhile, RBA Governor Philip Lowe will deliver a speech about recent trends in inflation. Aussie traders will be watching closely for any statements regarding the potential policy outlook and rate hike timeline.

On the data front, main economic releases this week include third-quarter wage price inflation.

UK Inflation Data to Fuel Rate Hike Expectations

The British economic calendar is packed with key economic releases this week including unemployment rate, wage growth, inflation figures and retail sales. Unemployment rate is expected to stay at its 1-year low in the three months to September.

On the other hand, October’s inflation is anticipated to jump to the highest level in nearly ten years which could fuel sooner rate hike expectations. Market consensus refer to 3.8% rise in annual CPI inflation rate, almost double the BoE’s inflation target at 2%.

Weekly Market Outlook

The Bank of England held interest rates steady at its historic low of 0.1% and maintained its bond-buying programme at £875 billion. The central bank signaled it will raise interest rates in the coming months responding to high inflation. Market participants were already pricing in a rate hike before the end of the year, now it’s almost certain that the bank will raise interest rates during its next meeting in December.

Stronger CPI to Support the Loonie

Canadian inflation figures will be released on Wednesday, and market forecasts point to another jump in prices during October. Annual inflation soared to 4.4% in September, the highest in 18 years, pushing the BoC to review the timing of the first rate hike since the pandemic.

The Bank of Canada decided in its October meeting to end the quantitative easing programme given the progress made in the economic recovery. The bank kept its overnight rate at 0.25%, as widely expected, and expects it to remain at the current level until sometime in the middle quarters of 2022 when the 2% inflation target is anticipated to be sustainably achieved.

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