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Forex Major Currencies Outlook (Aug 16 – Aug 20)

After a quiet week, economic data returns with a bang. RBNZ meeting will be the highlight as expectations are for a 25 bp rate hike. Consumption data from the US and China, inflation data from the UK and Canada coupled with employment data from the UK and Australia as well as preliminary Q2 GDP data from Japan are all crammed into the week ahead of us.

USD 

Headline inflation data in July came in at 5.4% y/y, same as in June indicating that inflation has peaked. Food, new vehicles and shelter were the biggest contributors to the inflation reading, showing that inflation pressures are coming from many sides. Core inflation has, on the other hand, eased to 4.3% y/y from 4.5% y/y the previous month. Slowdown in core inflation coupled with dovish remarks from several Fed members regarding timing of the taper have taken their toll on the USD as it started to lose ground. 

Bipartisan infrastructure bill worth $1.2 trillion was passed by the US Senate with a 69-30 vote. The next step for the bill is to get approval in the House. The timing of the vote on infrastructure bill in the House is dubious as Democratic leader Pelosi stated that she wants to match the timing of this bill with an additional bill that will see $3.5 trillion to be spent on healthcare, climate change and other priorities. The infrastructure bill should add more to the GDP reading as well as put additional price pressures. 

This week we will have consumption data. 

Important news for USD: 

Tuesday:

  • Retail Sales 

EUR 

ZEW survey for August showed current conditions for Germany in August improve to 29.3 from 21.9 in July. Optimism surrounding summer months and reopening is still felt among the investor as they assess the current conditions. On the other hand, expectations have plunged significantly coming in at 40.4 for German economy, it was 63.3 previously and 42.7 for the Eurozone economy, it was 61.2 in July. This is the third straight month of falling expectations. Expectations category shows growing concern among the investors regarding the impact of Delta virus variant with potential slowdown in China adding to the worries. 

This week we will have second reading of Q2 GDP. 

Important news for EUR: 

Tuesday:

  • GDP 

GBP 

Preliminary reading showed Q2 GDP grew by 4.8% as expected, bouncing back from -1.6% contraction in Q1. Easing of covid restrictions led to the rise in activity and rebound in demand. Household consumption rose 7.3% vs -4.6% in Q1 with government spending coming in at 6.1% vs 1.5% the previous quarter. Business investment came in at 2.4% vs -10.7% in Q1 while net trade contributed negatively to the GDP as imports rose more than exports. 

This week we will have employment, inflation and consumption data. 

Important news for GBP: 

Tuesday:

  • Claimant Count Change
  • Unemployment Rate

Wednesday:

  • CPI

Friday:

  • Retail Sales 

AUD 

July trade balance data from China showed increase in trade surplus to $56.58bn from $51.53 in June. However, both exports and imports missed expectations with exports showing a smaller miss. They came in at 19.3% y/y while imports were at 28.1% y/y. Trade surplus with the US widened to $35.4 from $32.58 the previous month. Inflation data came in higher than expected with CPI at 1% y/y and PPI at 9% y/y. Last month’s PPI came in at 8.8% y/y, lower than 9% y/y in May and some analysts presumed it represented a shift in rising input prices, however this month’s reading indicates that trend of rising input prices continues. There is a possibility though that it is plateauing and data from the coming months will provide us with answers. 

This week we will have employment data from Australia as well as consumption and production data from China. 

Important news for AUD: 

Monday:

  • Retail Sales (China)
  • Industrial Production (China)

Thursday:

  • Employment Change
  • Unemployment Rate 

NZD 

Retail card spending in July was another data point contributing to the good economic picture coming from New Zealand. Retail card spending contributes almost 70% to the core retail sales and it came in at 0.6% m/m vs -4% m/m as expected with yearly figure rising to 4.7% from 4% in June. 

This week we will have RBNZ meeting. Expectations are for the rate hike of 25bp, the first major central bank to raise rates since the pandemic began. Markets are pricing two rate hikes by the end of the year so if RBNZ strikes more cautious tone NZD may suffer. 

Important news for NZD: 

Wednesday:

  • RBNZ Interest Rate Decision 

CAD 

Federal elections have been called for September 20. Polls show that Prime Minister Trudeau's Liberals are supported by about 36% of the voters which could secure a majority, due to the division among the other candidates. Trudeau has been leading a minority government for around two years. CAD has closely followed movements in the oil market and when oil prices began to recover it strengthened with USDCAD finishing down for the week. 

This week we will have inflation and consumption data. 

Important news for CAD: 

Wednesday:

  • CPI

Friday:

  • Retail Sales 

JPY 

PPI for July came in at 1.1% m/m vs 0.5% m/m as expected and 5.6% y/y vs 5% y/y as expected. The prices rose in July at their fastest annual pace in 13 years. However, chances of it transferring to the CPI are slim as downward pressures prevail on consumer prices. JPY finished the week almost unchanged from where it started it as summer lull was prevailing. 

This week we will have preliminary Q2 GDP reading and it may prove to be positive in the end. 

Important news for JPY 

Monday:

  • GDP 

CHF 

SNB total sight deposits for the week ending August 6 came in at CHF713.2bn vs CHF712.0bn the previous week. This is the biggest rise in deposits in a long time, potentially indicating that SNB is considering increasing their activity in the markets to combat the rising Swissy. The seasonally adjusted unemployment rate in July ticked down to 3% indicating stable labour market conditions.

You can follow all economic events on the Economic Calendar page on our Website. MT server time is set to GMT+3 and if you need assistance converting MT server time to your local time you can use some of the online time converters such as WorldTimeBuddy.

Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.

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