The FX market is set to experience some noteworthy economic events in the coming week. While the banking sector's stress has taken a backseat, inflation is gradually regaining the top spot in people's concerns. Although there are indications that inflation is subsiding in the United States, some analysts believe that the Fed still needs to undertake some tightening measures and are expecting another 25bps rate hike at the next meeting in May before pausing.
On Monday, the calendar is light with no significant economic events to watch for. Tuesday will observe a bank holiday in Australia and New Zealand. Japan will release the BoJ Core CPI y/y, while the U.S. will have the CB consumer confidence, new home sales, and the Richmond manufacturing index.
On Wednesday, Australia will get the inflation data, and the U.S. will release the durable goods orders. Thursday brings the release of the advance GDP q/q and unemployment claims for the U.S., along with the pending home sales m/m.
Finally, on Friday, Japan will release the Tokyo CPI y/y, the BoJ outlook report, monetary policy statement, and policy rate. The U.S. will release the Core PCE price index m/m.
The CB consumer confidence is anticipated to remain unchanged, whereas for new home sales, a slight decline is expected.
In Australia, although the inflation data is expected to have peaked, it still remains high in comparison to the RBA's target. In its previous meeting, the RBA kept the rates at 3.6%. There were mixed expectations among analysts, with around half anticipating a 25bps rate hike while the other half believing a pause would be more appropriate.
However, if the inflation rate continues to stay high, analysts from Citi predict that the RBA will maintain tightening over the next few months and even continue hikes later in the year.
The U.S. durable goods orders have registered a recent decrease in demand, and other industrial data also indicates a slowdown. The ISM manufacturing index has seen successive contractions for the past 5 months, and the manufacturing output has come to a standstill. The environment for new capital investment is also increasingly unfavorable. The forecast for durable goods orders is for a 0.8% growth m/m, likely supported by Boeing aircraft orders.
There is a possibility of an upside surprise in the GDP q/q data for the U.S. economy, due to positive consumer spending data at the start of the year. The consensus is for unemployment claims to grow from 245K to 249K and pending home sales m/m to also rise from 0.8% to 1%. On Friday, the U.S. core PCE is expected to cool down to 4.5% y/y, but is likely to see a slight rise in month over month data.
The Tokyo CPI is an important metric to monitor for Japan as it acts as an early indicator for the upcoming national metrics in a couple of weeks. It is expected that the Core Tokyo CPI will decrease from 3.3% to 3.1%, mainly due to energy prices stabilizing. Although the inflation data in Japan has shown signs of cooling down, it still remains higher than the BoJ's target of 2%.
This week marks the first meeting with the new Governor Ueda, and there is much anticipation for any potential clues regarding a future normalization of monetary policy, even though there are no expected changes in easing plans for now. Some analysts have predicted the adjustment or even abandonment of the YCC in the future, but this is unlikely to happen during this week's meeting.
USD/CAD expectations
This week the pair is likely to trade in a range. The only thing that might cause some volatility is if the U.S. PCE core deflator doesn't slow down from Q4's 4.4% as expected.
The pair closed the week near the 1.3550 level of resistance. From there a correction is expected until the 1.3480 level of support. If that level holds, the next target could be 1.3625 or 1.3730.
On the downside the next support levels are at 1.3410 and 1.3330.
This article was written by Gina Constantin.
