FX Markets See Light Calendar Ahead: Chinese, US CPI; RBNZ Meets

FX Markets See Light Calendar Ahead: Chinese, US CPI; RBNZ Meets

Talking Points:

- The calendar is considerably lighter this week, with only three ‘high’ rated economic data releases due up over the coming five days.

- Neither the British Pound nor the Euro see any meaningful data on the calendar in the coming days that could materially alter current trends.

- A rebound in US inflation on Friday could further help stabilize the US Dollar after last week’s all-around solid July US Nonfarm Payrolls report.

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08/09 Wednesday | 01:30 GMT | CNY Chinese Consumer Price Index (JUL)

Chinese consumer prices rose by +1.5% y/y in June, continuing the inter-year rebound after setting a two-year low in inflation in February (+0.8%). Nevertheless, price pressures remain muted relative to the start of the year, when CPI was +2.5% y/y in January. Thanks to rebounding base metal prices, the Producer Price Index – the cost of inputs at the factory gate, if you will – has stabilized, due in at +5.6% from +5.5% y/y. Slowly improving inflation readings out of China could filter through and impact the Australian and New Zealand Dollars under the guise that greater demand and ‘hotter’ economic activity from China will help with the two antipodean currencies appreciate.

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

08/09 Wednesday | 21:00 GMT | NZD Reserve Bank of New Zealand Rate Decision

The Reserve Bank of New Zealand meets this week amid economic data and financial markets having barely shifted since they last met on June 22. In the interim, the Q2’17 New Zealand Consumer Price Index slipped back to +1.7% from +2.2% (y/y), while NZD/USD has rallied over +1.4%.

The RBNZ has the potential to hit the Kiwi via commentary on the exchange rate. At the June meeting, the RBNZ said that “the trade-weighted exchange rate has increased by around 3 percent since May, partly in response to higher export prices. A lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector.” Further New Zealand Dollar strength over the interim makes it more difficult for the RBNZ to achieve its policy goals, which they could very well point out this week. These appear to be factors that would suggest a relatively more dovish tone should be in place when the RBNZ meets on Wednesday.

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

08/11 Friday | 12:30 GMT | USD Consumer Price Index (JUL)

According to a Bloomberg News survey, US consumer prices were slightly higher on a monthly-basis in July, due in at +0.2% from 0.0% (m/m) and +1.8% from +1.6% (y/y). The core readings should be similar, at +0.2% from +0.1% (m/m), and at +1.7% unch (y/y). These figures remain below the Fed’s +2.0% medium-term target, and represent the biggest obstacle to the Fed following through on its plan to raise rates one more time before the year is over. After all, it was at the July FOMC meeting that the Fed started to raise its level of concern about undershooting inflation. Any impact on the US Dollar will be vis-à-vis the glide path pricing channel; currently, there is a 54% chance of a 25-bps rate hike by March 2018.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

Read more: Euro Sentiment at Extreme, Rally Low on Fuel with Light Calendar Ahead

--- Written by Christopher Vecchio, Senior Currency Strategist

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

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