After the publication of the NFP report for June, market attention is now shifting to the US CPI inflation data for June, which will be released next Wednesday. Investors from the dollar and gold markets will look for hints as to whether there is a chance for at least a minimal change in the Fed’s approach to politics. Speaking of central banks, investors will learn about interest rate decisions from the BoC and RBNZ, which could create additional volatility in the markets. Be sure to pay attention to GOLD, AUD / NZD and USD / CAD next week.
The market awaits a further path of interest rates in New Zealand
Reserve Bank of New Zealand is set to revise monetary policy on Wednesday. Markets are valuing a 100% chance for a 50 basis point hike and a 67% chance for a 75 basis point hike. However, investors will also focus on comments regarding the future path of interest rates. Recently, the central bank suggested that the economy could enter a recession in 2023 after a poor reading of the business sentiment index. Some analysts expect the pace of interest rate hikes to slow down in the coming months. Investors interested in AUDNZD should also take note of the important readings from Australia, which include Wednesday’s Westpac Consumer Confidence Index and employment figures, which will also be released that day ahead of the start of the European session.
The US labor market surprised positively
The publication of the NFP’s June report was the main event of the previous week. Investors will have to wait until Wednesday for the next key report from the US economy, as then the CPI inflation data for June will be released. The market expects that the price dynamics will slightly accelerate from 8.6 to 8.7% YoY, and the core indicator will slightly decrease from 6.0 to 5.9% YoY. While the slowdown would be welcome, it is unlikely to be large enough to discourage the Fed from changing its bias. High reading close to the consensus may guarantee another hike by 75 bp, despite huge fears of recession.
Investors expect a 75 bp rate hike in Canada
Next week we will know the decision of several central banks around the world. However, the BoC meeting to be held on Wednesday is of the greatest interest to investors. The Bank of Canada is expected to raise rates by 75 bp to 2.25%. The central bank sees a “neutral” range for interest rate policy at 2-3% and investors would like to hear if the central bank still plans to raise rates to the top of this range given the bleak macroeconomic outlook. A hike by 75 bp would also provide grounds for a similar move in the US. American investors are waiting for the companies’ financial results for the second quarter, which will start to be published this week. Markets may also react to other key US macro data, namely PPI inflation data and unemployment benefit claims on Thursday, and flash UoM consumer sentiment and retail sales data on Friday.
The author of the text is Dom Maklerski XTB.
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