The BoC increased interest rates by 25bps last week and left open the possibility of further rate hikes if inflation remains persistent. Although there are indications of a slowdown in inflation for the United States, it is not sufficient to persuade the Fed, so an additional 25bps rate hike is on the table. Consumer borrowing data came in very soft and consumer credit growth is now at the slowest pace since 2020, suggesting that higher interest rates are impacting the economy.

This week will start with the release of the U.S. the Empire State Manufacturing index on Monday. On Tuesday, Australia will publish the Monetary Policy Meeting Minutes, while in Canada we'll get the CPI data. The United States, on the other hand, will release the core retail sales m/m and the overall retail sales m/m figures.

Moving on to Wednesday, both New Zealand and the United Kingdom will unveil their respective inflation data, while Thursday will bring significant announcements, including Australia's employment change and unemployment rate and the U.S. unemployment claims data and the Philly Fed Manufacturing Index.

The week will close with Japan releasing the National Core CPI y/y figures on Friday.

The consensus for the U.S. Empire State Manufacturing index is for a change from 6.6 to -3.6. A negative print indicates that the surveyed manufacturers are reporting worsening conditions.

The RBA Monetary Policy Meeting Minutes on Tuesday will expand on the Bank's decision from its July 4th meeting where it decided to keep rates on hold. The RBA's board is committed to return inflation to target and maintained a hawkish tone leaving the door open for additional hikes if the inflation doesn't cool down in what they view as a reasonable timeframe.

The June CPI data for Canada will be very important for the BoC's future decisions. As a reminder, at last week's meeting the Bank decided to hike the interest rates by 25bps and while inflation has been decreasing for some time, it does so at a slower pace than the BoC would want and remains above its 2% target. The jobs market is also proving to be more resilient than the Bank's expectations, but it appears a slowdown is currently underway. A hawkish tone from the BoC will be supportive for the CAD in the near future and the market now expects another rate hike at the September meeting.

The retail sales for the U.S. this week are likely to print above expectations for this week's data. Consumer spending has shown resilience so far, but the overall outlook is not very positive especially due to tighter financial conditions like worsening credit conditions and a slowdown in income growth putting pressure on savings.

The inflation data for New Zealand is likely to continue to slow down, though it still remains above the RBNZ's target. However, if this trend reverses and the CPI starts increasing, the Bank might be forced to hike again.

This week's CPI data for the U.K. is very important to watch as it can be key in the BoE's decision to hike next month as well as for determining the size of that potential hike. Earnings data printing above expectations last week put even more pressure on the BoE so if inflation comes in hot, then a hike is very likely at the next meeting. According to analysts from ING, the services component of core inflation will be the most important indicator for the BoE because it's already at a post-Covid high. A further rise in services CPI could push the Bank towards a more aggressive 50bps hike instead of 25bpbs.

The recent labour data for Australia pointed to a tight jobs market after a stronger than expected report last month when the economy added 75.9K new jobs. It's possible that this week's data will show some moderation, but the unemployment rate is likely to remain somewhere around 3.6%, close to the all-time low of 3.4%.

The National Core CPI y/y data for Japan is expected to see a small increase partly due to a rise in energy prices as a result of the unusually hot weather registered lately in Japan. The government issued a heat stroke warning for Tokyo and the surrounding areas and according to analysts from ING this will likely result in a rapid increase in the spot power rate, meaning consumer energy prices might rise modestly in June. That said, it's unlikely that a rise in inflation will convince the BoJ to make changes to its monetary policy plans at the next meeting. Only a significant spike in inflation could force the Bank to reconsider its current views and expectations down the line.

This article was written by Gina Constantin.