US CPI, Australia CPI and RBNZ Rate Decision Headline Event Risk this Week
Reserve Bank of Australia’s Governor Stevens may inspire a bout of volatility in the Australian Dollar as he speaks on the economy and monetary policy. However, the impact on the single-currency will depend on RBA’s Stevens’ tone. In recent speeches he has maintained that the exchange rate is high compared to its historical average and that market participants should be wary of a correction lower, but maintains a neutral stance on taking any action that may weigh on the single-currency. With this in mind, unless there is a noticeable shift in his attitude towards the Australian Dollar, traders may look to the Australian CPI due the next day for directional cues.
The headline USConsumer Price Index is expected to hold at 2.1 percent and core 2.0 percent in June, both of which are at the Federal Reserve’s inflation target. Considering that inflationary pressures drive monetary policy, market participants will look to the inflation report. A positive outcome may support the US Dollar, particularly as it fuels interest rate speculation. In the July 17/18 minutes of the FOMC meeting the Fed said QE3 is likely to come to an end at the meeting in October as policy makers appeared confident that the economic recovery is underway, and the labor market is steadily improving.
Australia’s headline inflation rate is expected to rise to 3.0 percent in the second quarter, marking the highest level in two years. The outcome would fall in line with RBA’s long-term target of 2.0-3.0 percent. A beat in this figure may support the single-currency, whereas a miss would weigh on the Australian dollar. However, it should be noted that if a beat in the figure occurs, the RBA is unlikely to shift its interest-rate outlook, thus limiting any follow through.
Last week New Zealand’s headline inflation rate unexpectedly fell to 1.6 percent in the second quarter, and missing expectations calling for a print of 1.8 percent. The outcome did not enhance expectations that the RBNZ will raise rates this week, but it did not hinder them. The RBNZ has already raised rates twice this year, prompting a strong appreciation in the New Zealand Dollar against its major peers. This week, the RBNZ is again expected to raise rates by another 25 basis points to 3.5 percent. The interest rate advantage has made the kiwi an attractive spot for capital flows as investors seek yield in an environment plagued with low volatility.
The UKpreliminary figure of second-quarter gross domestic product is to show economic output rose to 3.1 percent from 3.0 percent in the first quarter. The figure is a broad indicator of economic activity and measure of the economy’s health.
David Maycotte, DailyFX Research Teamemail me at firstname.lastname@example.org
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