There are no important events scheduled for Monday
that could significantly influence the FX market, but Tuesday we'll have the
monetary policy meeting minutes for the AUD and the inflation data for the CAD.
Wednesday the focus will be on the NZD where we'll have the Official Cash Rate
and the RBNZ press conference. The GBP CPI data is also expected, and the USD
retail sales are worth keeping an eye on. We'll also have the FOMC meeting
minutes, but the meeting itself is not expected to be a very important one. On
Thursday the market's attention will be on the AUD employment changes and the
unemployment rate.
Take note that summer trading conditions are likely to make this a difficult week.
The CPI data for the CAD will probably not be a market mover especially if it comes in line with expectations. Year over year it's expected to rise to 8.4% from 8.1%. Energy prices have declined steeply which is likely to take some pressure off broader pricing, but this is not enough evidence that inflation is cooling down. The BOC will pay attention to this data, but the Governor signalled that inflation might continue to rise before coming down.
We haven't heard much from the BOC since the last July hike. The market fully expects a 50bps hike, but there's also a 25% probability of a 75bp increase in September. However, if the upcoming data will come better than expected, like the US CPI report did, the likelihood of a 75bp hike will decrease.
RBNZ is expected to deliver the 7th rate hike this week, but analysts from ING say there is "a risk of dovish tilt". Inflation data hasn't shown signs of cooling down and wages have been above expectations. This is a strong reason for further rate hikes, but ING analysts think there are a few signs that might influence the Bank's decisions for a dovish approach: The economic outlook doesn't look promising, the consumer confidence is below the 2008 low and the labour market saw an increase from 3.2% to 3.3%. China's slowdown can also have a negative impact and the housing market can weigh on the Bank's decision as well as it's showing signs of slowing down.
The RBNZ is facing a
rapid contraction in house prices that brought the house price index down by
2.5% over the past three months -- its biggest quarterly decrease since October
2008. There are multiple reasons for this, including the government's policies
that have favoured new residential builds and a decrease in consumer demand for
housing due to weak confidence. The 2-year and 5-year fixed mortgage rates rose
120-130bp since December and 48% of existing loans are due to re-price over the
coming year. This puts great cost pressure on households, the ING analysts
said.
That being said, the Bank must avoid an unwanted impact on inflation
expectations, so it might keep rate projections unchanged for now and revise
them later in the year.
The German ZEW Surveys are also expected this week and they're worth keeping an eye on because they reflect the economic activity in Germany and more broadly in the Eurozone. For now, no improvement is expected, and the Eurozone is still likely heading towards recession in the near future.
On Wednesday, the UK CPI is expected to come above expectations again and keep in mind that the BOE expects inflation to reach 13% in Q4 2022. Energy prices will continue to put pressure as they're expected to increase further due to limited exports from Russia and supply shortages across the continent.
The Fed previously stated they are data dependent, so after the strong labour market data and the cool CPI last week, the FOMC minutes on Wednesday are not expected to contain anything significant. However, since Powell noted all participants have evolved their rate views, any comments on the outlook will be key.
NZD/USD expectations
On the H4 chart the trend is bullish and the pair closed the week near the 0.6470 level of resistance. A correction is expected from that level. On the H1 chart, MACD is forming a bearish divergence which could signal a bigger correction or a potential change in the short-term trend. The next level of support is at 0.6335. If that level doesn't hold, the next one is at 0.6225. On the upside the next level of resistance is at 0.6550.
If the RBNZ is dovish this week, it might favour a move to the downside. From a seasonality point of view the NZD has been weak in August over the years. In the short term the prospects are for a move to 0.6225 before a rebound, but surprises can always happen in the FX market so take a closer look at this RBNZ meeting for more clues.
USD/CAD expectations
There is room for further depreciation of the USD against the CAD. The Fed is now likely to hike the rate by 50 bps at the next meeting in September, but a 75 bps might also be on the table. On the H1 chart the pair looks flat, but there is a bullish divergence on MACD. A correction is expected until 1.2835 which is the next level of resistance. If that level doesn't hold, the next one is at 1.2890. On the downside, the next level of support is at 1.2730 and if broken the next support is at 1.2675.
GBP/CHF expectations
The pair still looks bearish, and a potential target might be 1.1100 as there's no sign yet that the downtrend is over. The UK’s economic outlook doesn’t look good at all. However, Swiss inflation is expected to peak in August, so the CHF might fall in September, especially if the SNB will be less hawkish at the next meeting.
On the H1 chart, a correction until the 1.1490 level of resistance is to be expected. If that level doesn't hold, the next resistance is at 1.1530. From there the downtrend should resume.
This article was written by Gina Constantin.
