Weekly Market Outlook – This week is packed with more policy statements from several central banks as well as key data releases. The Reserve Bank of New Zealand is set for a 50 bps rate hike as inflation reaches new peaks. Investors will be watching the meeting minutes from both the Federal Reserve and Reserve Bank of Australia for further clues about policy plans for the remaining months of the year.
Key Data to watch this week on the economic calendar:
- RBA Monetary Policy Meeting Minutes.
- CAD CPI.
- AUD Wage Price Index.
- RBNZ Cash Rate Decision.
- UK CPI.
- US Retail Sales.
- FOMC Meeting Minutes.
- AUD Employment Figures.
NZD – RBNZ Continues its Tightening Cycle
The Reserve Bank of New Zealand is widely expected to deliver another 50 bps rate hike for the fifth meeting in a row, bringin the official cash rate to 3.00% with a total of seven hikes since Oct. 2021.
Annual inflation rate spiked to 7.3% in the second quarter of 2022, the highest since 1990, from 6.9% in the first quarter and higher than market forecasts of 7.1%. On a quarterly basis, inflation rate eased from 1.8% to 1.7% in the April-June quarter, while markets expected only a 1.5% gain.
The New Zealand dollar has been among the top performing currencies recently, climbing to its highest levels in two months backed with the strong economic activity and tightening bias enacted by the RBNZ. However, the NZD is still vulnerable to any policy changes and economic data. Since markets are pricing a half-percentage point hike, which is already reflected on the prices, the NZD is not expected to show strong reaction following the decision.
USD – FOMC Minutes in Focus as Economy Enters Recession
Following two-quarters of contraction, the US economy is being threatened with recession amid spurring inflation and aggressive back-to-back rate increases. However, the Federal Reserve has pushed against it given that the labour market is booming after a 530k job gain in July, and unemployment fell to a new low of 3.5%. But unless Q3 data shows otherwise, the economy may be stuck into a stagflation phase.
USD investors will turn their attention to the FOMC meeting minutes on Wednesday looking for clues whether the latest 75 bps rate hike was the last aggressive tightening steps in this cycle.
Meanwhile, retail sales are set to reflect a weaker growth as surging inflation is impacting the purchasing power.
AUD – Eyes on Labour Market Data
The Australian Dollar is having a busy week as investors await several key data releases as well as the RBA Meeting Minutes.
Earlier this month, the Reserve Bank of Australia delivered a 50 bps rate hike as the committee “places a high priority on the return of inflation to the 2–3 per cent range over time, while keeping the economy on an even keel.”, the statement revealed. The bank expected inflation to peak later this year before declining back towards the 2–3% target range.
On the data front, the economy is expected to add around 26.5K jobs in July, following a massive job gain reported in June at 88.4K. Meanwhile, the unemployment rate is set to stabilize around its fresh record low of 3.5% for the second month.
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