Talking Points:

- The Euro continues to largely ignore the Catalan independence movement, with damage being contained locally to Spanish Bonos and the IBEX.

- Focus shifting from the GBP-negative news flow of Brexit headlines to the GBP-positive impact that higher inflation brings should help keep the British Pound buoyed in the near-term.

- The US Dollar has seen its recent rally lose some steam after a streak of unsettling economic data; speeches from Fed policymakers will take the spotlight in lieu of meaningful economic data releases.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

10/16 Monday | 21:45 GMT | NZD Consumer Prices Index (Q3’17)

New Zealand is expected to see a small rise in Q3’17 inflation figures, constrained by the reduced base effect from oil prices as well as a stronger trade-weighted New Zealand Dollar year-over-year. As a result, we’re looking for the Q3’17 New Zealand CPI figure to come in at +1.8% (y/y), which would be the second consecutive quarter with sub-2% inflation. Another reading below the RBNZ’s medium-term target could weigh on the New Zealand Dollar as rate hike speculation for the remainder of 2017 and the first half of 2018 stays tempered.

Pairs to Watch: AUD/NZD, NZD/JPY, NZD/USD

10/17 Tuesday | 08:30 GMT | GBP Consumer Price Index (SEP)

The British Pound’s post-Brexit base effect weakness has almost worked its way out of the system, but its influence will linger at the upcoming inflation release. Consensus forecasts are calling to see price pressures increase by +0.3% m/m (down from +0.6% in August) and +3.0% y/y (up from +2.9% in August). Likewise, Core CPI is expected to hold at +2.7% (y/y).

The Tuesday data release bears significant importance for the Sterling, as several Bank of England policymakers have expressed concerns of an “inflation overshoot,” warning that headline CPI could overtake 3% by October. Now that inflation is expected to reach these lofty levels, the BOE appears to be locked-in for a November rate hike. Coming into this week, there was a 75% chance of a 25-bps tightening move next month when the BOE releases its Quarterly Inflation report.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

10/19 Thursday | 00:30 GMT | AUD Employment Change & Unemployment Rate (SEP)

According to Bloomberg News consensus forecasts, the Australian employment increased by +15.0K in September after gaining+54.2K in August. The report for August was solid, with full time employment increasing by +40.1K over the period; the composition of jobs shifted from to more full time and fewer part time. Additionally, the unemployment rate is expected to hold at 5.6%. Despite the steadily improved state of the labor market, uneven economic data appears to be a wrinkle in the outlook for the Reserve Bank of Australia, which noted recently that wage pressures aren’t strong enough to provoke a rate hike any time soon. Interest rate expectations (per overnight index swaps) show only a 2.4% chance of a hike by December 2017.

Pairs to Watch: AUD/JPY, AUD/NZD, AUD/USD

10/19 Thursday | 02:00 GMT | CNY Gross Domestic Product (Q3’17)

The Chinese economy is forecast to have grown by +6.8% on an annualized basis in the third quarter, essentially the same rate of growth seen during 2016 and 2017 overall. Once again, for 2018, the Chinese government is targeting the economy to grow between +6.5% and +7.0%. As the Chinese government guides growth rates lower as the economy matures, it’s important to recognize that the growth readings are the lowest in nearly three decades – since 1990. Chinese growth is currently being fueled by increased government expenditures and an overall trade surplus (as data since March has showed), although it bears to see if the 2017 rally by the Chinese Yuan versus the US Dollar and other regional currencies will weigh on the competitiveness of Chinese manufacturing activity down the line.

Pairs to Watch: AUD/JPY, AUD/USD, USD/CNH

10/20 Friday | 12:30 GMT | CAD Consumer Price Index (SEP)

Canadian inflation is expected to have remained below the central bank’s medium-term target of +2.0% in September, perhaps throwing a wrench in the market’s belief that another rate hike is coming before the year is done. At the Bank of Canada’s recent policy meeting in September, and in subsequent comments made by BOC Governor Poloz, it was made clear that a third rate hike in 2017 was still in question. Amid the prospect of inflationary pressures staying below the BOC’s +2% medium-term goal, overnight index swaps for Canada are split with a 50% chance of a rate hike by year end. Despite recent improvements in the labor market, figures from Statistics Canada showed that overall wage growth is at its lowest since 1990.

Pairs to Watch: CAD/JPY, USD/CAD

Read more: Weekly Trading Forecast: Central Banks Back in the Spotlight

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com.

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