Last week was a quiet week as it usually happens after NFP. The focus was on the US CPI as everyone wanted to know if inflation had calmed down. Data showed some easing year-on-year but the battle is far from over as inflation remains high Markets now expect him to raise rates by 25 bps at his next FOMC meeting .
On Tuesday, we will have UK labor market data and Canadian inflation data, giving us clues about future rate hikes. In the United States, the Empire State Manufacturing Index is released.
The Bank of Japan’s outlook report, monetary policy statement and policy rate are due to be released in Japan on Wednesday, followed by a press conference by the Bank of Japan. We’ll get his PPI, retail sales and industrial production data for the US later in the day.
Australia will release changes in jobs and the unemployment rate on Thursday. In the US, meanwhile, building permits and housing starts data are expected.
On Friday, SNB Chairman Jordan will address a panel discussion titled “What’s Next for Monetary Policy?” at the World Economic Forum. ECB President Christine Lagarde will also address a panel at the Davos conference titled ‘Global Economic Outlook: Is This the End of an Era?’ Some Fed members are also expected to speak out this week.
In the UK, unemployment remains unchanged and average weekly earnings are expected to rise moderately from 6.1% to 6.3%. In Canada, inflation data showed signs of cooling in the past few months. CPI y/y could drop to 6.5% from 6.8% due to softer energy prices.
At its next meeting, the BoC may raise interest rates by 25bps to a final interest rate of 4.50%.
Analysts at Wells Fargo say it could be the last rate hike by the BoC if core inflation falls significantly in the coming months. However, SGH Macro analysts do not believe the tightening will stop until prices stabilize.
The effects of monetary policy changes are usually delayed, so the BoC may pause after its next meeting to see how things evolve. Macklem warned that raising interest rates too much could send the economy into an “unnecessarily painful recession”.
US retail sales and industrial print are noteworthy. Retail sales declined in November, but consumer spending remained strong. The most affected categories are furniture and car sales, which are primarily funded by credit. Retail sales could stabilize as consumer spending remains strong due to a tight labor market. The overall picture does not look optimistic as industrial production is expected to continue its downward trend. The ISM manufacturing index could contract further.
The Bank of Japan surprised the market last month by tweaking its bond yield management to give investors more room for long-term yields on 10-year bonds. There are rumors of a change in monetary policy by the Bank of Japan at some point, which some analysts say is unlikely to happen until Governor Haruhiko Kuroda’s term ends in April, but a surprise. can always occur.
US housing starts and existing home sales are expected to come under pressure again as higher mortgage rates reduce demand.
In Australia, labor market data will be important to the RBA’s future decisions following November’s high inflation. Without a slowdown, the bank could be forced to raise rates by more than his 50bps, which analysts at ING are currently forecasting.
US Dollar/Canadian Dollar Forecast
The lack of clear direction on the H1 chart may make the currency pair difficult this week as there is a lot of data to digest for the US and Canadian trades this week.
However, a bullish divergence seems to be forming on the H4 chart and could point to a larger correction for the pair, up to resistance at the 1.3490 or 1.3590 levels. The bear trend should resume from there, with the market now expecting rate cuts and the US dollar to lose strength in the near future.
On the downside, the next level of support is 1.3350 and 1.3260.
Risks in this trade are Canadian CPI data and US industrial production, which should be closely monitored.
This article was written by Gina Constantine.