Euro, US Dollar May Diverge Even as German and US Inflation Firms
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TALKING POINTS – EURO, GERMAN CPI, ECB, PCE, US DOLLAR, FED
- Euro unlikely to be impressed by uptick in German inflation
- US Dollar may rise if PCE data puts Fed outlook into focus
- Aussie, NZ Dollars fall on cooling RBA, RBNZ rate hike bets
German CPI data headlines the economic calendar in European trading hours. The headline on-year inflation rate is expected to register at 2 percent in August, unchanged from the prior month. The Euro seems unlikely to react strongly to the outcome considering near-term ECB policy is effectively on auto-pilot.
Later in the day, the spotlight turns to the Fed’s favored PCE inflation gauge. It is projected to show the core price growth rate returned to target at 2 percent. An uptick may help remind investors of the US central bank’s hawkish intentions relative to its G10 counterparts, sending the US Dollar higher.
The Australian and New Zealand Dollars plunged in Asia Pacific trade, succumbing to disappointing economic data. Kiwi sank as an index of business confidence hit a ten-year low. The Aussie fell as capex and building permits figures fell short of forecasts.
A drop in Chinese stocks compounded the Australian unit’s weakness. Mainland- and Hong Kong-listed shares fell US President Donald Trump accused Beijing of undermining efforts to pressure North Korea to scrap its nuclear arsenal, dimming hopes for a breakthrough in trade negotiations.
The currencies fell alongside the respective local bond yields, hinting that the day’s news flow inspired a dovish shift in RBA and RBNZ interest rate hike expectations. Indeed, the two central banks may well have missed the window to bring rates up from record lows in the current global growth cycle.
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ASIA PACIFIC TRADING SESSION
EUROPEAN TRADING SESSION
** All times listed in GMT. See the full economic calendar here.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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