Event risk for the forex markets will be scattered this week, as the Australian dollar faces inflation data, the British pound will grapple with central bank commentary and Q2 GDP, while the US dollar could weaken on the release of durable goods orders. Likewise, German investor sentiment could take a heavy hit, which adds to downside risk for the euro.
• [B]Australian Consumer Price Index - July 22[/B]
While the Reserve Bank of Australia has become decidedly more neutral in recent months, the Monetary Policy Committee is nevertheless still concerned about inflation pressures, as they said in the minutes of their last meeting that “members expected that the CPI for the June quarter…would show another high reading” and that “high outcomes risked lifting inflationary expectations and/or wage demands,” which would “make inflation more difficult to reduce over time.” The markets may see evidence of this on Tuesday at 21:30 EDT, as the RBA’s annualized weighted median measure of consumer prices for Q2 is expected to hold at a robust 4.4 percent, and this figure is actually excluding the largest price gains and declines. Meanwhile, the headline CPI figure is forecasted to pick up to 4.3 percent from 4.2 percent. Indeed, rallies in the cost of food, energy, and raw material products have raised upside inflation risks globally, and Australia is no exception. Though the global outlook for growth remains uncertain and credit conditions have tightened domestically, the RBA is still considered to be somewhat hawkish. While the bank is not expected to raise rates anytime soon, surprisingly strong inflation readings will lead the Australian dollar higher as the markets ramp up expectations for a potential 25bp rate increase to 7.50 percent before year-end.
• [B]Bank of England Meeting Minutes – July 23[/B]
The 4:30 EDT release of the minutes from the Bank of England’s July meeting – when they left rates unchanged at 5.00 percent – presents major event risk for GBP/USD, as they are likely to reflect much of the same mixed sentiment seen in the meeting minutes from June. Indeed, the minutes showed that in May, CPI “developments…had meant that the risks to inflation in the medium term had moved further to the upside,” and that some members had taken this evidence to be enough to “consider whether an immediate rise in Bank Rate was warranted.” However, they also feared that a surprise hike “might be counter-productive by appearing to exaggerate the Committee’s concerns about the medium-term prospects for inflation.” Furthermore, the downside risks for growth in the UK loom large, and though “a recession…was not the central expectation, there was a small but growing risk of a very negative outcome that would cause inflation to undershoot the target in the medium term.” As a result, MPC member David Blanchflower voted in favor of a 25bp cut. As a result, there will likely be at least one vote for a rate cut in July, but if the vote count actually shows that the decision to leave rates steady was a unanimous vote, or if there were any votes for a rate increase, the British pound could surge on the news.
• [B]German IFO Survey – July 24[/B]
Sentiment amongst Germany’s investors is expected to worsen in July, according to the IFO survey. The figure is scheduled to be released at 04:00 EDT, and this release tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given the instability in the financial markets over the survey period along with signs that the European Central Bank will not even consider cutting rates, there is a risk that the ZEW reading could actually be even more disappointing that expected.
• [B]UK Gross Domestic Product – July 25[/B]
Economic expansion in the UK is anticipated to slow significantly during Q2 to match a three-year low of 1.6 percent, down from 2.3 percent in Q1. If anything, the odds are in favor of a more dramatic slowing, as the June PMI surveys of the manufacturing, services, and construction sectors all reflect a contraction in business activity. Meanwhile, home prices continue to plummet while lending standards tighten, only dimming already-tepid growth prospects. As a result, the news could weigh on the British pound quite heavily, unless the data proves to be surprisingly strong.
• [B]US Durable Goods Orders – July 25[/B]
Can Boeing help the US durable goods orders figure to rebound? Unlikely, as airline orders may actually weigh on the headline reading. For the month of June, Boeing reported only 62 airplane orders, down from 67 in May. While the headline will have the most impact on forex trading, the markets should keep an eye on non-defense capital goods orders excluding aircraft, as this number serves as a leading indicator for business investment. The reading has fallen negative during 4 of the past 5 months, and continued declines will not bode will for US GDP in the second quarter, especially as consumer spending wanes.
[B]See the DailyFX Calendar for a full list and timetable of upcoming event risks.[/B]
[B]Questions? Comments? E-mail: <[email protected]>[/B]