Weekly Market Outlook

Weekly Market Outlook: RBNZ Rate Decision and US Data Eyed

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Weekly Market Outlook

FOMC meeting minutes and RBNZ rate decision highlight the economic calendar this week. On the date front, investors will be watching for major economic releases including:

  1. US PCE inflation.
  2. US prelim Q3 GDP.
  3. Eurozone PMIs.

USD Higher Ahead of FOMC Minutes and GDP Data

The US Dollar index strengthened for the fourth consecutive week, reaching the 96.00 handles on Friday, the highest level since July 2020. The rising greenback is backed by boosted confidence, strong economic recovery, and a policy tightening cycle.

The Federal Reserve will be publishing the meeting minutes for its November policy meeting later on Wednesday. At the meeting, the Fed announced tapering the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities from the current $120 billion a month. The statement stressed that Fed’s policy is not on a preset course, and the bank will act if necessary.

Investors will be looking for further clues on the next monetary policy steps. The Fed Chairman, Jerome Powell, stated earlier that the bank can be patient on rate hikes but will not hesitate to act if inflation remains elevated.

Market participants are pricing in two rate hikes in 2022, and possibly a third one if the economy continues to surprise on the upside.

Weekly Market Outlook
US Dollar

On the data front, it will be a busy week for USD traders. The prelim GDP is expected to confirm the slower economic growth during the July-September quarter. Meanwhile, the Personal Consumption Expenditures (PCE), the preferred inflation gauge to the Fed, is set to see further gains to 4.6% on annual basis in October. The core index is expected to rise sharply from 3.6% to 4.1%.

RBNZ is Likely to Hike Again

The Reserve Bank of New Zealand is set to hike the rate for the second consecutive meeting. Despite it being almost certain the bank will move again; expectations are split between a 25 and 50 bp move. Inflationary pressures are accelerating and the labor market is recovering. The employment rate is at its lowest level in 14 years. The economy has proved to be resilient, recovering quickly from recent lockdowns and the pandemic obstacles.

During its October meeting, the Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 0.50% for the first time since June 2014. Members stated that the decision was appropriate to maintain low inflation and support maximum employment. The 25 bp rate hike signaled the start of a policy tightening cycle that was expected to begin in August but was delayed by the recent outbreak of the Delta variant and the lockdown in Auckland, the biggest city in New Zealand. 

The central bank mentioned its awareness of elevated uncertainty affected by COVID-19 and related restrictions which have badly affected some businesses and a range of service industries. These restrictions are expected to have longer-term implications for economic activity both domestically and internationally. But noted that New Zealand’s public health is evolving as vaccination rates increase, and recent economic indicators support confidence that the economy will recover quickly. 

Policymakers added that further removal of monetary stimulus is expected over time, but future moves are conditioned on the medium-term outlook for inflation and employment. 

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