As the US Bureau of Labor Statistics reported last Thursday, inflation in the US, as measured by the Consumer Price Index (CPI), fell to 8.2% year-on-year in September from 8.3% in August. The core CPI (excluding energy and food prices) increased by 0.6% and 6.6% on a monthly and annual basis, surpassing economists' forecasts.
The dollar strengthened sharply immediately after the release of the US Bureau of Labor Statistics report, also taking advantage of the jump in US government bond yields. Now, according to the CME Group, the probability that the Federal Reserve will raise rates by 75 bps in November is 99%.
Subsequently, the dollar began to decline again. Market participants again assessed the success of the Fed's actions to curb inflation, besides, weekly data published at the same time by the US Department of Labor indicated a deterioration in the situation on the US labor market: the number of applications for unemployment benefits for the last week ended October 8 increased by 228,000, which is higher than 225,000 predicted by economists.
Nevertheless, the annual core US Consumer Price Index has reached a new 40-year high of 6.6%, and the Fed's chances of further tightening are increasing.
Now the participants will closely monitor the deteriorating geopolitical and economic situation in the world, while the divergence between the monetary policies of the Fed and other major central banks of the world, including the European Central Bank, will expand.
Thus, our main scenario remains the further growth of the dollar, which is also based on the greater stability of the US economy in comparison with other major economies of the world.
The upward dynamics of the dollar still prevails, pushing its DXY index towards more than 20-year highs near 120.00, 121.00. The breakdown of the local "round" resistance levels of 114.00, 115.00 will be a signal indicating the return of the DXY index to growth.
The beginning of next week promises to be calm, important macro statistics will be received from the end of the trading day on Monday (at the beginning of the Pacific trading session). Market participants will pay attention to the release of important macro statistics on New Zealand, the USA, the UK, Canada, China, Australia, and the eurozone during the next trading week.
As always, a number of important macroeconomic data and a number of important news are expected to be published during the new trading week. It is also worth noting that changes may be made to the economic calendar during the coming week.
Consumer prices account for most of the overall inflation. Rising prices force the central bank to raise interest rates to contain inflation, and, conversely, when inflation decreases or signs of deflation (this is when the purchasing power of money increases and the prices of goods and services fall), the central bank usually seeks to devalue the national currency by lowering interest rates to increase aggregate demand.
This indicator (Consumer Price Index, CPI) is a key one for assessing inflation and changes in consumer preferences.
A high result is a bullish factor for NZD, a low result is a bearish one.
Previous values: +1.7% (+7.3% in annual terms) in the 2nd quarter, +1.8% (+6.9% in annual terms) in the 1st quarter of 2022).
The data is better than the forecast and the previous values should have a positive impact on the NZD.
The level of influence on the markets is high.
This document, which is a detailed report on the last management meeting of the RBA, gives an idea of the economic conditions that influenced its decision on the level of interest rates.
If the RBA positively assesses the state of the labor market in the country, the GDP growth rate, and also shows a hawkish attitude towards the inflation forecast in the economy, the markets regard this as a higher probability of a rate hike at the next meeting, which is a positive factor for the AUD. The soft rhetoric of the statements of the bank's managers regarding, first of all, inflation will put pressure on the AUD.
"The board will do everything necessary to ensure that inflation in Australia returns to the target level over time," said RBA Governor Philip Lowe. "This will require further interest rate hikes in the future."
Economists have raised their forecasts for tightening the policy of the RBA amid a very tense labor market in the country and an increased level of savings (previously they predicted a level of 2.6% by December 2022 and the same level next year).
Now they expect 3.1% by the end of the year and a peak of 3.35% in the 1st quarter of 2023. If the published minutes contains unexpected or additional information concerning the issues of the RBA's monetary policy, then the volatility in AUD quotes will increase.
The level of influence on the markets is from low to high.
The National Bureau of Statistics of China will publish a quarterly report on GDP, which is the broadest indicator of economic activity and the main indicator of the state of the economy. High GDP figures will have a positive impact on the quotes of the Chinese yuan, and, conversely, a weak GDP report will have a negative impact on the CNY.
The dynamics of China's GDP indicator is reflected not only on the dynamics of the Chinese yuan, but also on the dynamics of the world, primarily Asian stock indices, as well as on the quotes of commodity currencies such as the New Zealand and Australian dollars. China is the largest trade and economic partner of Australia and New Zealand and a buyer of commodities from these countries.
Therefore, positive macro statistics from China may also have a positive impact on the quotes of these commodity currencies, although the data coming from China recently indicate a slowdown in the world's largest economy, and this is a negative factor for stock markets and commodity currency quotes.
Previous values of Chinese GDP: -2.6% (+0.4% YoY) in the 2nd quarter, +1.3% (+4.8% YoY) in the 1st quarter of 2022, +1.6% (+4.0% YoY) in the 4th quarter, +0.2% (+4.9% YoY) in the 3rd quarter, +1.3% (+7.9% YoY) in the 2nd quarter, +0.6% (+18.3% YoY) in the 1st quarter of 2021.
The level of influence on the markets is from medium to high.
The retail sales index is published monthly by the National Bureau of Statistics of China and estimates the total volume of retail sales and cash generated. This is the main indicator of consumer spending, which accounts for most of the total economic activity. It is also considered an indicator of consumer confidence and reflects the state of the retail sector in the near future.
An increase in the index is usually a positive factor for CNY; a decrease in the indicator will have a negative impact on CNY.
Previous index values (in annual terms) +5.4%, -6.7%, -11.1, -3.5, +6.7 ( in February 2022) after an increase of +8% in the last months of 2019 and a fall of -20.5% in February 2020).
The data indicate the uneven recovery of this sector of the Chinese economy after a strong fall in February-March 2020. If the data turns out to be weaker than the forecast and/or previous values, the CNY may weaken sharply.
The level of influence on the markets is from medium to high.
This leading indicator of the country's foreign trade balance reflects the weighted average price of 9 dairy products sold at an auction organized by Global Dairy Trade (GDT) in percentage terms and is usually published every two weeks.
The economy of New Zealand in many respects still has signs of raw materials, and the main share of New Zealand exports is dairy products and food products of animal origin (27%, according to data for 2020). Therefore, the decline in world prices for dairy products has a negative impact on NZD quotes, as it signals a decrease in export revenue coming to the budget of New Zealand.
Conversely, the growth of the dairy product price index has a positive effect on the NZD.
Previous values: -3.5%, +2.0%, +4.9%, -2.9%, -5.0%, -4.1%, -1.3%, +1.5%, -2.9%, -8.5%, -3.6%, -1.0%, -0.9%.
The level of influence on the markets is from low to medium.
The Consumer Price Index (CPI) reflects the dynamics of retail prices and is a key indicator of inflation. Consumer prices account for most of the overall inflation. The assessment of the inflation rate is important for the management of the central bank when determining the parameters of the current monetary policy.
The indicator below the forecast/previous value may provoke a weakening of the pound, since low inflation will force the Bank of England to adhere to a soft monetary policy. Conversely, the growth of inflation and its high level will put pressure on the BoE to tighten its monetary policy, which in normal economic conditions is assessed as a positive factor for the national currency.
Previous values of the indicator (in annual terms): 9,9%, 10,1%, 9,4%, 9,1%, 9%, 7%, 6,2%, 5,5%, 5,4%, 5,1%, 4,2%. The data indicate an acceleration in the growth of inflation.
The level of influence on the markets is high.
The Consumer Price Index (CPI) determines the change in prices in a certain basket of goods and services for a given period, being a key indicator for assessing inflation and changes in consumer preferences.
In the Core Consumer Price Index (Core CPI), food and energy are excluded in the calculation for a more accurate assessment.
The assessment of the inflation rate is important for the management of the central bank when determining the parameters of the current monetary policy. The indicator below the forecast/previous value may provoke a weakening of the euro, as low inflation will force the ECB to adhere to a soft monetary policy. Conversely, the growth of inflation and its high level will put pressure on the ECB to tighten its monetary policy, which in normal economic conditions is assessed as a positive factor for the national currency.
Previous CPI values (in annual terms): +9.1%, +8.9%, +8.6%, +8.1%, +7.4%, +7.4%, +5.9%, +5.1% ( in January 2022).
Previous values of the Core CPI indicator (in annual terms): +4.3%, +4.0%, +3.7%, +3.8%, +3.5%, +3.0%, +2.7%, +2.3% ( in January 2022).
The level of influence on the markets (final release) is average.
The Core Consumer Price Index (Core CPI) from the Bank of Canada reflects the dynamics of retail prices (excluding fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transport and tobacco products) and is a key indicator of inflation. Consumer prices account for most of the overall inflation. The assessment of the inflation rate is important for the management of the central bank when determining the parameters of the current monetary policy.
Given that the inflation target for the Bank of Canada is in the range of 1%-3%, the growth of the indicator (CPI and Core CPI) above this range is a harbinger of a rate hike and a positive factor for CAD.
If the expected data is worse than the previous values, this will negatively affect the CAD. The data will strengthen the Canadian dollar better than the previous values.
Previous values of the indicator (in annual terms): 5.8%, 6.1%, 6.2%, 6.1%, 5.7%, 5.5%, 4.8%, 4.3%, 4.0%, 3.6%. The data indicate an acceleration in the growth of inflation.
The level of influence on the markets is high.
This report by the Australian Bureau of Statistics is an extremely important indicator of the state of the Australian labor market. Reflecting the monthly change in the number of employed Australian citizens, it is also an important leading indicator of consumer spending, which accounts for most of the total economic activity of the population.
The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth. A high value of the indicator is a positive factor for AUD, and a low value is a negative one.
Previous values of the indicator: +33500 in August, -40900 in July, 88400 in June, +60600 in May, +4000 in April, +17900 in March, +77400 in February, +12900 in January 2022.
The unemployment rate is an indicator that evaluates the ratio of the share of the unemployed population to the total number of able-bodied citizens. The growth of the indicator indicates the weakness of the labor market, which leads to a weakening of the national economy. The decrease in the indicator is a positive factor for AUD.
Previous values of the indicator: 3.5% in August, 3.4% in July, 3.5% in June, 3.9% in May, April and March, 4.0% in February, 4.2% in January.
If the values of the indicators from this report turn out to be worse than the forecast, then the Australian dollar may decline sharply in the short term. Data that is better than the forecast will have a positive impact on AUD.
The level of influence on the markets is from medium to high.
The level of interest rates is the most important factor in assessing the value of a currency. Investors look at most other economic indicators only to predict how rates will change in the future. Since the Chinese economy is, according to various estimates, the first in the world (at the moment), Chinese macro data and decisions of the country's monetary authorities can have a great impact on the financial market and investor sentiment, especially on the markets of the Asia-Pacific region.
It is expected that at this meeting, the People's Bank of China will keep the interest rate at the same level of 3.65%, although unexpected decisions are not excluded. If the PBOC makes unexpected statements or decisions, then volatility may increase in the entire financial market. Investors will also be interested in the bank's assessment of the effects of coronavirus on China's economy and its policy in the near future, in this regard.
The level of influence on the markets of the final assessment is from low to high.
The US Department of Labor will publish a weekly report on the state of the US labor market with data on the number of primary and secondary applications for unemployment benefits. The state of the labor market (together with data on GDP and inflation) is a key indicator for the Fed in determining the parameters of its monetary policy.
The result is higher than expected and the growth of the indicator indicates the weakness of the labor market, which negatively affects the US dollar. The drop in the indicator and its low value is a sign of the recovery of the labor market and may have a short-term positive impact on the USD.
It is expected that the number of initial and repeated applications for unemployment benefits will remain at lows corresponding to the lows of the period before the coronavirus pandemic, and this is also a positive factor for the dollar, indicating the stability of the US labor market.
Previous (weekly) values according to data on initial applications for unemployment benefits: 219,000, 190,000, 209,000, 208,000, 218,000, 228,000, 237,000, 245,000, 252,000, 248,000, 254,000, 261,000, 244,000, 235,000, 231,000, 232,000, 202,000, 211,000.
Previous (weekly) values according to repeated applications for unemployment benefits: 1,361,000, 1,346,000, 1,376,000, 1,401,000, 1,401,000, 1,437,000, 1,412,000, 1,434,000, 1,430,000, 1,420,000, 1,368,000, 1,384,000, 1,333,000, 1,372,000, 1,324,000, 1,331,000, 1,309,000, 1,309,000
The level of influence on the markets is from medium to high.
The PMI Business Activity Index in the UK services sector (S&P Global) is an important indicator of the state of the British economy. The service sector employs most of the working-age population of the UK, and it accounts for about 75% of GDP. The most important part of the service sector is still financial services. If the data turn out to be worse than the forecast and the previous value, then the pound is likely to decline sharply in the short term. The data is better than the forecast and the previous value will have a positive impact on the pound. At the same time, a result above 50 is seen as positive and strengthens GBP, below 50 - as negative for GBP.
Previous values: 50.0, 49.2, 52.6, 54.3, 53.4, 58.9, 62.6, 60.5, 54.1 ( in January 2022).
The level of influence on the markets (pre–release) is high.
The retail Sales Index is the main indicator of consumer spending, which accounts for most of the total economic activity, and is published monthly by Statistics Canada. The index is considered an indicator of consumer confidence, also reflecting the state of the retail sector in the near future. An increase in the index is usually a positive factor for CAD; a decrease in the indicator will have a negative impact on CAD. Previous values of the indicator: -2.5%, 1.1%, 2.2%, 0.7%, 0.2%, 3.3% ( in January 2022).
The level of influence on the markets is from medium to high.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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