Fed’s minutes, along with financial data to move the markets

With the holiday season in many European countries and Northern America on and with worries for the path of the pandemic globally, the week is about end. In the coming week on the monetary front, we highlight the release of the Fed’s last meeting minutes as well as Powell’s speech while from Australia RBA is also to release the minutes of its last meeting and from New Zealand RBNZ is to release its interest rate decision. As for financial releases we have a packed week ahead of us and on Monday we note Japan’s GDP rate for Q2 and China’s industrial output growth rate for July. On Tuesday we get UKs’ employment data for June as well as the US retail sales for July, while on Wednesday we highlight Canada’s inflation rates for the same month. On Thursday we get Australia’s employment data for July as well as the US Philly Fed Business index for August, while on Friday we get Japans’ CPI rates for July as well as UK and Canada’s retail sales for July and June respectively.

USD – To taper or not to taper?

The USD seems about to end the week at the same levels as it begun, despite some degree of volatility being present during the week. As the markets maintain their worries for the Fed’s intentions regarding its asset purchases, the debate whether the Fed is to taper its QE program earlier than expected or not, has heated up. Over the past week a number of Fed officials had expressed themselves openly in favor of tapering the Fed‘s QE program rather sooner than later, showing a deepening reef among the Fed’s policymakers ahead of the Jackson Hole summit near the end of August. Policymakers such as Dallas Fed President Kaplan seem to be more vocal in favouring some tightening action, while Fed Chairman Powell and NY Fed President Williams seem to be leaning more towards the dovish side. We highlight Powell’s speech on Tuesday

which may provide more clues as for the Fed Chairman’s stance. Also, on the monetary front we note the release of the bank’s last meeting minutes which could create substantial volatility for the USD, yet also for US stockmarkets. The greenback was boosted also by inflation data for producers which accelerated for the month of July, reaching record high levels. Should prices of raw materials continue to rise, producers may pass them on to the end price of their products, thus boosting inflation for consumers once again. Please note that the weekly initial jobless claims figure dropped implying that the US employment market tightened for the first week of August. In the coming week from the US, we start on Monday with the release of the NY Fed Manufacturing for August, on Tuesday the retail sales and industrial production, both for July and on Wednesday the Housing data for July. On Thursday we highlight the weekly initial jobless claims figure and the Philly Fed Business index for August.

GBP – Financial releases eyed

The pound seems about to end the week lower against the USD over te past week, but also against the common currency and the Japanese Yen, implying a weakness on the GBP side. Please note that the pound dropped despite data showing that the UK economy expanded in Q2 and escaped the negative territory, yet the markets seem to expect that the BoE despite all the confidence expressed, may be reluctant to proceed with any tightening of its monetary policy. It should be noted that in the past weeks the pound may have outperformed other currencies given that the pandemic eased its grip on the UK expressed in the lower number of Covid cases and high vaccination rates, which allowed the UK government to lift most of its social-distancing rules. On the fundamental side we note BoE’s monetary policy, as well as the path of the pandemic in the UK and Brexit as possible issues to watch out for. As for financial releases, on Tuesday we get UK’s employment data for June, on Wednesday we note UK’s CPI rates for July and on Friday we get UK’s retail sales growth rate for same month.

JPY – Is the covid situation hopeless?

JPY seems about to end the week stronger against the USD, and also slightly bullish tendencies are displayed against the common currency and the pound. Fundamentally the Covid situation in Japan remains worrying. It’s characteristic that a member of a Tokyo Metropolitan Government coronavirus advisory panel of experts, said it was now impossible to control the spread of Covid-19 in the capital. “Infections are raging at disaster level — it’s an emergency,” Norio Omagari said at a Thursday panel meeting with Tokyo Governor Yuriko Koike. “It’s impossible to control the situation” according to Bloomberg. It should be noted that the number of daily deaths seems to remain rather low, providing some comfort. We maintain the view that safe haven flows are to dictate the currency’s direction, yet we also get a high number of releases from Japan in the coming week. JPY traders are to have an early start as on Monday we get Japans’ GDP rate for Q2, on Wednesday we get Japan’s machinery orders for June and the trade data for July while on Friday we get Japans’ CPI rates for July.

EUR – Fundamentals to maintain control

The common currency seems about to end the week at the same levels against the USD yet tended to gain somewhat against the pound and even more against safe haven CHF. On the monetary front, ECB’s ultra-loose monetary policy seems to be weighing somewhat on the common currency. The interest rate differential seems to be highlighted as other central bank’s such as Canada’s and New Zealand’s have allready started or are about to tighten their monetary policy, while others such as the Fed is actively considering it. We also tend to maintain our worries for the economic rebound of the Zone, given that Germany’s forward looking ZEW indicators for the month of August, unexpectedly dropped showing less optimism for the next months of the largest economy in the Zone. At the same time, it should be noted that Eurozone’s industrial output growth rate slowed down for June, underscoring such worries. On the other hand, it seems that the inflationary pressures in Germany are still strong for the month of July. In the coming week, we note the release of Eurozone’s final HICP rate for July, and 2nd estimate for the GDP growth rate for Q2, while at the end of the week we get from Germany the producer prices for July.

AUD – Employment data in focus

The Aussie is also about to end the week at the same levels against the USD, as it begun. Aussie fundamentals though seem to weigh given that the pandemic back home has forced Australians to live under lockdown rules. At the same time iron ore prices, seem to continue to be in a down trend, as China’s pressure towards that end is considerable and could weigh on the Aussie, given that Iron Ore is one of the main export products of Australia. It should be noted that news from China were also worrying, given that one of the largest ports world-wide placed in China, has closed down due to coronavirus, which could adversely affect regional and to a lesser extent global trade conditions, to which the commodity currency AUD is quite sensitive. On the monetary front we highlight the release of RBAs’ last meeting minutes and should the document reflect the banks’ optimism, we may see the Aussie getting some support. As for financial releases from China we highlight on Monday the release of China’s industrial output growth rate for July, which is of particular interest for Australian exporters of raw materials and we also note China’s retail sales growth rate for the same month. On Wednesday we get Australia’s wage price index on a year on year basis for Q2, which could affect RBAs’ stance, while on Thursday we get Australia’s unemployment rate and employment change figure for July. Should overall, the employment data show a tightening of the Australian employment market, we may see the commodity currency getting some support, as it may allow RBA to express more confidence.

CAD – CPI rates in the epicenter

The Loonie seems to have gained a bit against the USD in the past few days, yet volatility overall seems to remain rather low for the pair. The Loonie’s strengthening against the USD seems to reflect the slight increase in WTI prices since Monday. Oil’s fundamentals seem to be split on how deep the effect of the pandemic’s Delta variant is to be on oil demand’s recovery. On the supply side of the oil market the possibility of OPEC members increasing substantially more their production levels seem to be fading away despite the US call for more oil. It should be noted that EIA noted in a report that oil consumption was on the rise in some countries boosting oil trader’s optimism, yet we tend to maintain our worries for the possible adverse effect of rising Covid cases on oil demand. On the other hand, the frictions of Canadian-Chinese relationships despite being intense recently with the jailing of a Canadian businessman in China, do not seem to affect the CAD, while news that Canadas’ PM Justin Trudeau could be calling for snap elections are also to be kept under close eye. As for financial releases from Canada in the coming week we note the release on Monday of the manufacturing sales for June, on Tuesday the release of the number of annualised house starts for July and the crown of financial releases from Canada is expected on Wednesday, namely the headline and Core CPI rates for the month of July, while on Friday we also highlight the release of the retail sales growth rate for June.

General Comment

As closure we would expect the USD to maintain the initiative over the other currencies, yet as the holiday period is on, we may see volatility remaining at rather low levels. Exactly for that reason, thin trading conditions may apply, so traders better be on their guard. As closure we would like to make a special reference to the interest rate decision of the Reserve Bank of New Zealand on Wednesday. The bank is widely expected to hike rates by 25 basis points and raise the Official Cash rate to 0.50% from current 0.25%, given also the recent boom in New Zealand’s housing market. Please note that NZD OIS imply that the market has currently fully priced in such a scenario and with everything else being equal we may see the Kiwi getting some support from the improved interest rate differentials outlook until the release. Should the bank actually hike rates as expected and at the same time show some confidence for the economic rebound of “fortress New Zealand” we may see the Kiwi getting additional support.

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Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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