Weekly Market Outlook: Another big week ahead, with a range of events to watch. This week is expected to be dominated largely by central bank monetary policy meeting minutes from Australia, and US Federal Reserve, inflation figures from the UK, surging oil and coal prices and Australian labour market data for January.
USD | FOMC Meeting Minutes
The minutes of the January FOMC meeting will be released on Wednesday. The rising inflation concerns have spooked market participants across the globe. With the US reporting its highest inflation rate in four decades, it’s likely the Federal Reserve will hike rates faster than expected.
It is expected that the minutes will provide detailed insights regarding the FOMC’s stance on monetary policy. The CME FedWatch Tool predicts a 50-bps rate increase in March, suggesting the central bank will speed up the pace of rate hikes. For this reason, currency traders closely analyze them for clues as to the outcome of future interest rate decisions.
The retail sales number for January, to be released on Wednesday, 16 Feb 2022, will be another key economic indicator. It is expected that January’s data will be better than December’s, and any disappointing figures will weigh on the Fed’s rate hike decision.
AUD | RBA Meeting Minutes
The Reserve Bank of Australia (RBA) will also release its monetary policy this Tuesday, 15 Feb 2022. RBA ends its bond-buying program, following the decision to upgrade its outlook for inflation and employment, and yet, it still refuses to concede it is about to hike interest rates. With the end of its bond-purchasing program, the bank should be watching inflation closely.
Reserve Bank Governor Philip Lowe said he’s prepared to tolerate inflation above the upper end of his 2-3% target range, reinforcing signals that Australia’s first interest-rate increase remains some way off.
The remarks indicate that the Reserve Bank of Australia is relatively sticking to its dovish stance on rate hikes as local inflation is not as high as rates in other major countries. Unlike on rates, the RBA decided to wind down its quantitative easing program based on global economic indicators. As the governor has repeatedly stated, a halt to bond-buying does not mean that monetary policy is getting tighter.
Australia’s Bureau of Statistics will release its January labour force data on Thursday that is likely to show an increase in unemployment to 4.3% in January from 4.2% in December, as the spread of Omicron hit the economy, which subsequently caused a drop in consumer spending on services. Economists believe employment losses last month were smaller than anticipated and will stabilize in February.
GBP | Retail sales and Employment data
This week will also see the release of fourth-quarter GDP numbers for the eurozone and the UK. In light of Russia’s continued threats to Ukraine and European energy supplies and prices (and inflation), historical data trends aren’t of immediate importance.
Among the financial releases, the UK employment numbers will be released on Tuesday, while the CPI rate for January will be released on Wednesday. It is important to note that the headline CPI rate on a year-on-year basis is already at a 20 year high, and further acceleration could lead to an even tighter monetary policy. This week concludes with the release of January retail sales for the UK.
CAD | CPI and Retail Sales
As far as monetary policy is concerned, we note BoC Governor Tiff Macklem’s comments that the current rate of inflation is too high, which might have implied that BoC is considering tightening its monetary policy.
The market is currently pricing in a 25 basis points rate hike at the early March meeting, and it seems to be pricing in more hikes by the end of the year. If the market’s expectations about monetary policy remain hawkish, it might provide support to the Loonie.
The WTI price hit a high point just above $91 per barrel yesterday and seems to be stabilizing somewhat today. Strengthening oil prices could support the CAD and vice versa, given the positive correlation of the commodity currency with oil since Canada produces a large amount of the commodity.
Tuesday will see the release of Canada’s annualized housing starts, while Wednesday will see the release of the country’s January CPI figures. And on Friday, we will receive the Canadian retail sales for December.
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