This week will start with some PMI surveys in the eurozone and the flash services PMI in the U.S. on Monday, followed by the core CPI y/y in Japan and the CB consumer confidence for the U.S. on Tuesday.
Wednesday will be a busy day with the CPI q/q and trimmed mean CPI q/q prints in Australia; the monetary policy report, overnight rate and BOC press conference in Canada; and the new home sales data for the U.S. On Thursday, the main event will be the ECB press conference and main refinancing rate and in the U.S. all eyes will be on the unemployment claims.
The week will finish off with the BOJ press conference and policy rate on Friday, along with the core PCE price index m/m in the U.S.
The Q3 CPI q/q in Australia is likely to print lower to 1.6% from 1.8% the previous quarter, but the y/y rate is expected to run hot -- 7.0% from 6.1%.
In Canada, the consensus according to the Reuters survey was that the BOC will hike rates by 50bps, but the survey was conducted before the latest CPI data surprised on the upside. Because of the new data, some analysts now expect the Bank to deliver a rate hike by 75bps, which according to Scotiabank, has more or less been priced in. Analysts will be watching this meeting for any clues about future rate hikes.
In the U.S. the new home sales are expected to see some slowdown due to high mortgage rates. The housing market has been negatively impacted by rising rates overall and will likely see further decline in the near future, despite a 30% increase in new home sales in August, which was more likely a temporary relief from the overall market downtrend. On Friday we will also get the data for pending home sales which will provide clues about the demand conditions.
The ECB is expected to hike the rate by 75bps this week and the market has already priced in an 80% possibility. The economy in the euro area faces many challenges due to the rising energy and commodity prices so the outlook for the euro is not very optimistic. The ECB seems to be committed to fighting inflation despite the economic condition and President Lagarde said that hikes will be spread out over the next several meetings.
ING analysts believe it's too early to talk about Quantitative Tightening (QT) but said "the Bank will seek to mop up bank liquidity." The analysts think the things to watch for in this ECB meeting are: the excess liquidity, quantitative tightening and the terminal rate.
No change is expected at this week's BOJ meeting and it's clear that the Bank will leave FX intervention in the government's hands. The Bank will likely maintain the QQE with Yield Curve Control to flexibly target 10yr JGBs at around 0%. The Bank's Outlook Report will also be released which will contain its members' forecasts for the Real GDP and Core CPI and the expectation is that the CPI will increase from the previous forecast of 2.3%.
In the U.S., the personal consumption expenditures (PCE) -- the Fed's favourite inflation gauge -- is likely to rise. Wells Fargo expects PCE to rise at a 0.8% annualized pace for the third quarter, up from the previous 0.6%. An increase in consumption would translate to import growth as well. Equipment spending is expected to be strong, but residential investment likely took a hit due to the higher mortgage rates.
USD/CAD expectations
The pair closed the week near the 1.3605 level of support. The CAD strengthened on Friday against the USD, but overall, on the H1 chart the pair lacked a firm direction, but rather moved in a range between 1.3650 and 1.3840. For this week it's likely we'll see some choppy moves as well.
A risk for this pair will be the BOC meeting and the U.S. GDP data for Q3. Expectations for the GDP are encouraging as the consensus is for 2.1% SAAR. Strong data will support the USD.
On the H1 chart the next levels of support are at 1.3605 and 1.3500. A move below 1.3500 likely opens the path for some depreciation. On the upside we have the levels of resistance at 1.3705, 1.3835 andthe 1.3970.
This article was written by Gina Constantin.
