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FX Week Ahead - Top 5 Events: US Durable Goods; Australia Inflation Rate; BOJ Rate Decision; US GDP; Eurozone Inflation Rate

FX Week Ahead - Top 5 Events: US Durable Goods; Australia Inflation Rate; BOJ Rate Decision; US GDP; Eurozone Inflation Rate

Christopher Vecchio, CFA, Senior Strategist

FX Week Ahead Overview:

  • The Federal Reserve is in its communications blackout window, elevating the importance of US economic data in the days ahead.
  • Incoming inflation data from Australia will further incentivize the Reserve Bank of Australia to raise rates rapidly after federal elections next month.
  • The Bank of Japan will once again commit to unlimited bond buying, which could catalyze USD/JPY rates to test 130.00 in the coming days.

For the full week ahead, please visit the DailyFX Economic Calendar.

04/26 TUESDAY | 12:30 GMT | USD Durable Goods Orders (MAR)

The US economy revolves around consumption trends, given that approximately 70% of GDP is accounted for by the spending habits of businesses and consumers. As such, the durable goods orders reportmake for an important barometer of the US economy. Durable goods are items with lifespans of three-years or longer – from refrigerators and washing machines to cars and airplanes. These items typically require greater capital investment or financing to secure, meaning that traders can use the report as a proxy for business’ and consumers’ financial confidence and health. Despite consumer sentiment surveys suggesting American businesses and consumers are feeling their finances squeezed thanks to multi-decade highs in inflation, the March print is expected to show a gain of +1% m/m after the -2.2% m/mloss in February.

04/27 WEDNESDAY | 01:30 GMT | AUD Inflation Rate (CPI) (1Q)

According to a Bloomberg News survey, 1Q’22 Australia inflation rates (CPI) increased by +4.6% y/y from +3.5% y/y. While these inflation rates continue to lag much of the developed world, the Reserve Bank of Australia’s target range is +1-3%, suggesting that price pressures will still be above the upper band. These data will be more evidence that the RBA needs to begin an aggressive rate hike cycle starting in June. In turn, the data may be what the Australian Dollar needs to stem its recent acute sell-off.

04/28 THURSDAY | 03:00 GMT | JPY Bank of Japan Rate Decision

The Bank of Japan will not be changing interest rates this week, nor will it be abandoning its QQE policy. But with respect to the latter of these points, with JGB yields running higher, another strong commitment to keeping bond yields capped will almost certainly emerge. In doing so, this could help spark the next leg of Japanese Yen weakness, with USD/JPY rates poised to test 130.00 for the first time in more than 20 years.

04/28 THURSDAY | 12:30 GMT | USD Gross Domestic Product (Q1)

The US economy appears to have slowed down at the start of 2022, a combination of lower fiscal and monetary support as well as the COVID-19 omicron variant having a chilling effect on business activity and travel. According to a Bloomberg News survey, a reading of +1.1% annualized is expected; the Atlanta Fed GDPNow growth tracker is sitting at +1.3%. Nevertheless, with US inflation rates at multi-decade highs, a weaker US GDP reading won’t do much to prevent the Fed from raising rates by 50-bps next week.

04/29 FRIDAY | 09:00 GMT | EUR Inflation Rate Flash (HICP) (APR)

The initial April Eurozone inflation rate report (HICP) is expected to show another increase in price pressures – though that doesn’t mean that the European Central Bank will change tact anytime soon. Forecasters pegging headlines price pressures up by +2.5% m/m and +7.5% y/y, and the core reading up to +3.2% y/y from +2.9% y/y.

Regardless of the data, the market is wrong about the European Central Bank, plain and simple. Rates markets are discounting the first ECB rate hike in July, while the ECB has repeatedly said that it will not raise rates until after asset purchases end in 3Q'22. As reality sets in, EUR/USD rates are likely to fall back to their pandemic low at 1.0635. Soon after, parity will become the focal point.

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.