Preview of the coming week on the forex market:
- Two central bank rate decisions in the coming days could show divergences: a Bank of Canada seeking to fight inflation more aggressively; and a Reserve Bank of Australia that preaches patience.
- UK growth rates may have started to decelerate at the start of 4Q’21, just as the Bank of England began signaling its intention to consider a rate hike.
- Inflationary pressures remain historically high in developed economies, and the next German and US inflation reports offer no sign of abating.
For the whole week ahead, please visit the DailyFX Economic Calendar.
07/12 TUESDAY | 03:00 GMT | Reserve Bank of Australia rate decision in AUD
The RBA has preached “patience” with its policy normalization approach, abandoning its efforts to control the yield curve while continuing its asset-buying pace of AU $ 4 billion per week.
It should be noted, however, that the RBA is now buying more debt than the Australian Federal Government issues, suggesting that there is virtually a guarantee that a slowdown in the stimulus will occur when the RBA meets. for the first time in 2022 on February 1. The last RBA meeting of 2021, however, can come and go without much fanfare.
08/12 WEDNESDAY | 3:00 p.m. GMT | CAD Bank of Canada rate decision
The BOC has proven to be one of the most aggressive major central banks in seeking to reduce stimulus efforts in the face of ever higher inflationary pressures, and more signals could be given at the last policy meeting in 2021. that rate hikes could be imminent.
As the Canadian labor market continues to strengthen alongside the economy as a whole beating expectations (Canada’s 3Q21 GDP has exceeded consensus expectations), the BOC may be inclined to suggest that a rate hike could arrive earlier than what the markets are currently discounting – that is, by April 2022.
12/10 FRIDAY | 07:00 GMT | EUR German inflation rate (F NOV)
The final reading of the German inflation rate for November should offer no respite. Due to + 5.2% year-on-year, the press release should confirm that this is the highest inflation rate since June 1992.
Even so, the European Central Bank appears reluctant to take any mitigation action anytime soon. As recently as last week, ECB President Christine Lagarde called the current rise in price pressures a “bump,” suggesting headline inflation figures would soon start to tumble. As a result, as the chasm between ECB and Federal Reserve policy widens, the euro is expected to remain under pressure.
12/10 FRIDAY | 07:00 GMT | GBP Gross Domestic Product (OCT)
The UK economy has experienced slower growth rates than the G7 in recent months, and the gap is expected to widen with the release of the UK October GDP report. Consensus forecasts predict that the 3-month growth rate will fall to + 1% over the August-October period against + 1.3% over the July-September period. It would mark the weakest three-month period of UK growth since the start of 2021, when the UK was under strict lockdown measures.
The data will likely increase stagflation fears for the UK, which, like other G7 economies, faces high inflation, as the Bank of England has lobbied with signals that it will start soon. to raise interest rates – a bad combination for the pound sterling. .
12/10 FRIDAY | 13:30 GMT | Inflation rate in USD (NOV)
Rising inflation persists in the United States, so much so that the Federal Reserve and the United States Treasury have abandoned the use of the term “transient” to describe the current situation. If markets were concerned last week about Fed Chairman Jerome Powell’s language changes regarding the inflation picture, November’s upcoming US Inflation Report (CPI) may rekindle some of those fears ( or: volatility of risky assets) before the last Reserve Policy Meeting of the year next week. Consensus forecasts point to a headline US inflation rate of + 6.7% y / y vs. + 6.2% y / y, while core inflation should climb to + 4.9% y / a of + 4.6% y / y.
— Written by Christopher Vecchio, CFA, Senior Strategist