UPCOMING EVENTS:
Wednesday: RBNZ Policy Announcement, S&P Global PMI for US, FOMC Minutes.
Last week was a pretty choppy one in terms of price action and we will probably see another similar one as we wait for the big economic data like ISM PMIs, NFP and US CPI releasing in the following weeks. The current theme is that the Fed is looking to slow the pace of hikes beginning with 50 bps at the December meeting unless we get a surprisingly hot CPI report just before the meeting.
The Fed and the market are now focused more on the terminal rate rather than the pace of rate hikes. This terminal rate is seen as somewhere in the 5% area. This week we have also US Thanksgiving holiday beginning on Thursday, so we will have a shorter trading week with just Wednesday providing some notable events.
On Wednesday the RBNZ is expected to raise its cash rate by 75 bps as inflation in New Zealand remains high at 7.2% Y/Y for Q3 data, which is well above their 1-3% target. The RBNZ seems the most sensible central bank that is not afraid to keep raising rates aggressively to achieve its goal, while other major central banks are slowing their hikes with inflation still well above their targets.
In the chart below the NZD/USD may pull back to the 0.60ish level before continuing the upward trend as the data for US is now expected to reinforce market expectation of an early pause sometime in Q1 2023. The next USD appreciation phase should come amid fear in the market when it will be more about the recession than the slowing inflation rate and pace of hikes.
Next, we will see the latest S&P Global PMIs for US which are expected to show further deterioration with the manufacturing PMI slipping into contractionary territory. The ISM PMIs are more important for the market, and we will get those the next week, nevertheless these PMIs will show how the US economy is going.
Finally, the FOMC Minutes will be released and those shouldn’t be a market mover as the market knows already pretty much everything and the minutes do not include the CPI report that followed the last FOMC meeting.
This article was written by Giuseppe Dellamotta.
