FX Week Ahead – Top 5 Events: Australia Inflation Rate; US durable goods; Fed meeting; US GDP; Eurozone GDP
Preview of the week ahead:
- The Australian Inflation Rate (CPI) report for Q2 2022 will give the Reserve Bank of Australia more reason to hike rates aggressively in the near term.
- The July Fed meeting will likely produce another 75 basis point rate hike, but that may not be enough for the US dollar.
- Stagflation is increasingly likely for the Eurozone, as the 2022 Q2 Eurozone GDP report will show a deceleration in growth as inflation rates rise.
For the entire week ahead, please visit the DailyFX Economic Calendar.
27/07 WEDNESDAY | 01:30 GMT | Inflation rate in AUD (CPI) (2Q)
The Reserve Bank of Australia continues to lag its major counterparts in terms of rising interest rates, but it may not last long. According to a Bloomberg News survey, Australian inflation in 2Q’22 is expected to come in at +1.8% q/q vs. +2.1% q/q and +6.2% q/y vs. +5, 1% t/a. With a strong domestic labor market continually beating analysts’ expectations, the RBA may see Australia’s Q2 2022 inflation rate (CPI) report as the evidence it needs to accelerate its rate hike schedule. , which should support australian dollar.
27/07 WEDNESDAY | 12:30 GMT | Durable Goods Orders in USD (JUN)
The US economy revolves around consumer trends, as approximately 70% of GDP is represented by the spending habits of businesses and consumers. Thus, durable goods orders bring inconstitute an important barometer of the American economy. Durable goods are items with a lifespan of three years or more – from refrigerators and washing machines to cars and airplanes. These items typically require greater capital investment or funding to secure, meaning merchants can use the report as an indicator of business and consumer financial health and confidence. erodes quickly opinion polls suggests that American businesses and consumers are reduce expenses thank you at multi-decade highs of inflation. According to a Bloomberg News investigation, the June Reading should show a loss of -0.4% m/m after +0.7% month/month Gain in May.
27/07 WEDNESDAY | 6:00 p.m., 6:30 p.m. GMT | US Federal Reserve rate decision and press conference
After the Fed hiked rates 75bps this week, there is only one discounted 25bps rate hike until the end of 2022. Coupled with the movement of the 2s5s10s butterfly, the he market’s interpretation of the short-term trajectory of Fed rate hikes has become decidedly less hawkish. While markets are still looking forward, the Fed’s rate hike this week may not be a bullish catalyst for the US Dollar if additional rate hikes this year are not reported.
The shape of the US Treasuries yield curve, coupled with lower odds of a Fed rate hike, is acting as a headwind for the US dollar. U.S. real rates (nominal minus inflation expectations) have also fallen, and now that other major currencies are seeing their own real rates rise thanks to more aggressive central bank action, the monetary policy expectations gap that the US dollar has accumulated over the past few months has tightened, eroding the US dollar’s relative advantage.
07/28 THURSDAY | 12:30 GMT | Gross domestic product in USD (2nd quarter)
The US economy is clearly going through tough times, at least judging by GDP estimates. According to a Bloomberg News survey, the initial 2Q’22 US GDP report is expected at +0.5% annualized versus -1.6% annualized in 1Q’22. However, bBased on data received so far for 2Q’22, the Atlanta Fed’s GDPNow growth forecast is now -1.6% annualized, from -1.5% on July 15 . [decreasing] from -8.8% to -10.1%.”
But would that constitute a recession? Not necessarily. According to the NBER, a recession is “a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale and retail sales.” But for US real GDP, these other conditions are not yet met.
29/07 FRIDAY | 09:00 GMT | Gross domestic product in EUR (2T) and inflation rate (HICP) (JUL)
The European Central Bank is raising rates to stem inflationary pressures, but growth is slowing due to heavy pressures in energy markets resulting from Russia’s invasion of Ukraine and ensuing sanctions. Bond market fragmentation is a concern, with echoes of the Eurozone debt crisis of the 2010s growing louder. Needless to say, the Eurozone is in a tough spot. Eurozone core inflation for July is expected at +3.8%y/y vs. +3.7%y/y, while initial Eurozone GDP report for 2Q 22 is expected at +0.2% q/q versus +0.6% q/q and +3.4% y/y versus +5.4% y/y. This could be the tip of the iceberg; Eurozone Q3 GDP 22 appears to be in much worse shape.
— Written by Christopher Vecchio, CFA, Senior Strategist