Market Outlook for the Week of 14 – 18 August

<p>The
previous week saw a decrease in the U.S. CPI, indicating the effectiveness of
the Federal Reserve's monetary strategy. However, a concern among analysts is
that next month's data print might see a rise due to increases in energy costs.
Looking ahead to monetary policy leading up to the September FOMC meeting,
there will be an additional jobs report, but the current market expectation is
that the federal funds rate will remain unchanged.</p><p>
Looking ahead to the coming week, there are several key events to watch:</p><p>On Tuesday,
Australia is set to release the Monetary Policy Meeting Minutes and the Wage
Price Index for the quarter. Meanwhile, in the U.K., the focus will be on the
Claimant Count Change and the Average Earnings Index 2m/y. Canada will release
the CPI data, while the U.S. will print the Empire State Manufacturing Index
and Retail Sales data.</p><p>The most
important event on Wednesday will be the RBNZ's Monetary Policy Announcement.
The U.K. will see the release of the CPI data and the U.S. will get the
Building Permits, Housing Starts and the disclosure of the FOMC Meeting
Minutes.</p><p>On
Thursday, Australia will reveal the Employment Change figures and the
Unemployment Rate. In the U.S., attention will be on Unemployment Claims
statistics and the Philly Fed Manufacturing Index, providing a snapshot of
manufacturing sector performance.</p><p>The week
will wrap up with Japan sharing its National CPI print for the year-on-year
period, giving valuable information into the nation's inflation trends.</p><p>The RBA
will release the Monetary Policy Meeting Minutes for the meeting on August 1st.
During that meeting, the Bank chose to maintain the existing interest rates and
emphasized the potential need for additional rate hikes should inflation show
extended persistence. The Board highlighted that inflation could potentially
align with the 2%-3% target by the end of 2025 and noted that elevated interest
rates will play a role in balancing supply and demand.</p><p>There is a
consensus among analysts regarding the wage price index in Australia,
indicating a slight uptick from the previous 0.8% to 0.9%. Private sector wages
are continuing to decline at a greater rate than originally anticipated, so the
gains will have to come from the public sector, which means there's a risk the
data could come below expectations.

For the U.K. on Tuesday, the expectation is that the unemployment rate will
remain unchanged at 4%, and the pace of employment growth will persist in its
sluggish trajectory. Regarding wage data, the previous month's figures
surpassed expectations, which might be a trend that continues in this week's
data. The BoE will closely monitor wage data due to its potential impact on
inflation growth, as higher wages could assist consumers in coping with
elevated prices.</p><p>The
upcoming CPI data release for Canada holds significant importance, as it could
provide insights into the possibility of additional rate hikes by the BoC by
year-end. Certain analysts are projecting a 0.2% increase in the m/m data and a
modest uptick in the y/y figure from 2.8% to 2.9%. The BoC emphasized the
potential resilience of inflation, suggesting the likelihood of it remaining
around 3% before eventually declining. If the CPI figures surpass expectations,
the CAD might strengthen, which combined with resilient demand and higher wage
growth could pave the way for another hike this year. However, for now the
chances of another hike remain low.

During the upcoming week's meeting, it is anticipated that the RBNZ will
maintain the official cash rate at 5.50% and provide indications that the
current hiking cycle has reached its peak.</p><p>China's
economic downturn could negatively impact the broader outlook for New Zealand's
economy due to a potential decline in commodities export prices. The RBNZ might
make some adjustments to its inflation expectations and its policy decisions
will be driven by both local and external data.

Inflation figures for the U.K. are projected to exhibit a cooling trend, moving
from 7.9% to 6.7% in the y/y data, with the core CPI also showing a possible
decrease from 6.9% to 6.8%. It's worth recalling that in the previous month,
inflation data fell more than expected, a decline attributed to softening
petrol and diesel prices. Despite this, the inflation rate remains notably
elevated and far from the BoE's desired target of 2% which means another 25bps
rate hike is on the table for the September meeting.</p><p>The
employment change data for Australia is likely to drop from 32.6K to 15.2K, but
Westpac's forecast is 25K, well above the market expectation. Their estimation
is due to recent labor-related data not showing any softening in labor demand
or job vacancies. Moreover, work-hour restrictions for international students
were reintroduced on July 1st, potentially forcing employers to hire more
workers to make up for the lost hours. </p><p>
The RBA will carefully monitor labor market indicators, but higher emphasis
will be placed on the m/m inflation data which will be influenced by higher
energy prices in July.</p><p>The
unemployment rate for Australia is likely to rise modestly from 3.5% to 3.6%.
The rate is near historical low levels where it's holding pretty well. Last
month the participation rate was slightly lower, but the labor force registered
a growth of 21.8K which means the jobs market remains tight for now. Until the
end of the year some weakness is possible. </p><p>The
consensus regarding unemployment claims in the U.S. points to a decrease from
248K in the previous week to 240K. The Philly Fed Manufacturing Index is
expected to shift from -13.5 to -9, suggesting a somewhat discouraging scenario
for manufacturing activity. On a brighter note, expectations are for retail
sales to mirror robust consumer activity for the past month.</p><p>The
upcoming Japanese National Core CPI data, scheduled for release this Friday, is
expected to decline from 3.3% to 3.1%. Notably, the y/y figures exceeded
expectations in the previous month. The BoJ made an unexpected tweak to yield
curve control (YCC) to enhance flexibility and changed its near-term inflation
forecasts from 1.8% to 2.5%.</p><p>Analysts
from ING believe the high price levels observed in the second quarter likely
contributed to a moderation in private consumption. Nonetheless, they
anticipate that this might be balanced by improvements in terms of trade
resulting from softening commodity prices and imports.</p><p>Even if
inflation maintains its current levels, there's a potential for the core
inflation to run hot, as indicated by the recent Tokyo inflation outcome.</p><p>NZD/USD
expectations</p><p>On the H1
chart the NZD/USD looks good for selling opportunities. The pair closed the
week near the 0.5985 level of support. From there a correction is expected
until 0.6045 or even 0.6070.</p><p>It's worth
mentioning that weak data from China might influence the NZD to lose strength
in the near future by negatively impacting the country's commodities exports
and economic outlook.</p><p>From a
seasonality point of view, it’s worth mentioning that the month of August is
usually a risk-off month for FX markets with the AUD and NZD declining the
most. This can also be the case this year if fundamentals align.</p><p>There is
plenty of data this week both for the NZD and for the USD and the summer market
conditions might make the pair a bit more volatile if there are significant
deviations from expectations.</p><p>This article was written by Gina Constantin.</p>

This article was written by FL Contributors at www.forexlive.com.