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The first trading week of 2023 is over. Apart from Monday, when the world was still celebrating the new year, this week turned out to be extremely volatile. The dollar rallied and its DXY index rose, recouping its losses of the last 3 weeks. Now, after the release of the data from the US labor market and economic activity in the US manufacturing sector, traders will be assessing the latest data on US inflation, which will be published mid-week on 09.01.2023-15.01.2023 in order to prepare and make certain conclusions before the Federal Reserve meeting that will start on January 31.
As follows from the minutes of the Fed's December meeting, published last week, its leaders confirmed their readiness for a further tightening of monetary policy. Fed officials believe that if cost shocks and supply disruptions keep inflation elevated for a long period, then there is a high probability that the interest rate will be raised again at the next meeting (January 31-February 01). The question for now is how strong the hike will be, and the inflation data coming up this week will allow traders and investors to draw some conclusions on this matter.
Also, traders and investors will pay attention to important macro data on Australia, China and the US.
No important macro data scheduled for release.
The Bank of Canada, like many of the world's major central banks that have taken the path of monetary tightening, is in a tricky situation - keeping inflation down without hurting the national economy. It is obvious that the recent harsh decisions, when interest rates were raised immediately by 0.50% or 0.75%, were made against the background of not only growing fears of rising inflation, but also the risks of a deepening global economic downturn.
Macklem is likely to explain the Bank of Canada's recent interest rate decision and possibly provide guidance on the outlook for monetary policy.
The tough tone of his speech will help the Canadian dollar strengthen. If it does not touch upon the monetary policy of the central bank, the reaction to his speech will be weak.
The Consumer Price Index (CPI) measures price changes in a basket of goods and services over a certain period. CPI is a key indicator for inflation and changes in purchasing habits. Assessment of the inflation rate is important for the central bank in determining the parameters of current monetary policy. A figure below the forecast/previous value can provoke weakening of the AUD, as low inflation will force the Reserve Bank of Australia officials to pursue a soft monetary policy course. Conversely, rising inflation and high inflation will put pressure on the RBA to tighten its monetary policy, which in normal economic conditions is seen as a positive factor for the currency.
Previous values of the index: +6.9%, +7.3%, +6.8%, +7.0%.
The level of influence on the markets is high.
The Retail Sales Index is a key indicator of consumer spending, which accounts for the majority of overall economic activity. It is also considered as an indicator of consumer confidence and reflects the state of the retail sector in the near term.
A rise in the index is usually positive (or bullish) for the AUD; a drop in the index or worse than expected data is seen as negative (or bearish).
The previous index reading is -0.2%, +0.6%, +0.6%, +1.3%, +0.2%, +0.9%, +0.9%, +1.6%, +1.8%, +1.8% (January 2022). Forecast for November: +0.2%.
The level of impact on the markets is medium.
The Consumer Price Index (CPI) measures retail prices and is a key indicator of inflation. Consumer prices account for a large part of overall inflation. An assessment of inflation is important for central bankers in determining the parameters of current monetary policy.
A figure below the forecast/previous value can provoke weakening of the Chinese yuan, as low inflation will force the People's Bank of China to pursue a soft monetary policy. Conversely, rising inflation and a high rate of inflation would put the central bank of China under pressure to tighten monetary policy, which is seen as positive for the currency in normal economic conditions.
As China's economy is estimated to be the fastest growing economy in the world (at the moment), Chinese macro data could have a strong impact on financial markets and investor sentiment, especially on the Asia-Pacific region.
Previous index values (annualized): 1.6% (for November), 2.1%, 2.8%, 2.5%, 2.7%, 2.5%, 2.1%, 2.1%, 1.5%, 0.9%, 0.9% (in January 2022). The data show an acceleration in inflation.
The level of impact on markets is low to high.
This indicator measures the difference between exports and imports. If exports exceed imports, there is a trade surplus, which has a positive effect on the exchange rate.
Decrease in surplus may negatively affect the quotes of the national currency. Conversely, an increase in the trade surplus is a positive factor.
Previous values (in billions of Australian dollars): 12.217 (October), 12.444 (September), 8.324 (August), 8.733 (July), 17.670 (June), 15.016 (May), 13.248 (April), 9.738 (March), 7.437 (February), 11.786 (January).
Forecast for November: A$12.944 billion.
The level of influence on the markets is low to medium.
Consumer prices account for the majority of overall inflation. Rising prices cause the central bank to raise interest rates to curb inflation, and conversely, when inflation is falling or there are signs of deflation (a general decline in prices for goods and services and purchasing power increases) the central bank usually seeks to devalue the national currency by lowering interest rates in order to increase aggregate demand.
This indicator (Core Consumer Price Index, Core CPI) is key to assessing inflation and changes in purchasing preferences. Food and energy are excluded from this indicator in order to get a more accurate estimate (the prices of this category of goods account for about a quarter of the Consumer Price Index. They tend to be very volatile and distort the underlying trend. The FOMC tends to pay more attention to the underlying data).
A high reading is bullish for the USD, a low reading is bearish.
Previous values: +0.2% (+6.0% annualized) in November, +0.3% (+6.3% annualized) in October, +0.6% (+6.6% annualized) in September, +0.6% (+6.3% annualized) in August, +0.3% (+5, 9% annualized) in July, +0.7% (+5.9% annualized) in June, +0.6% (+6.0% annualized) in May, +0.6% (+6.2% annualized) in April, +0.3% (+6.5% annualized) in March.
Data better than forecast and previous values should be positive for USD.
The level of influence on the markets is high.
At the same time, the U.S. Labor Department will release its weekly report on the US labor market with data on initial and continued unemployment claims. The labor market condition (together with GDP and inflation data) is a key indicator for the Fed in determining its monetary policy parameters.
A result above expectations and a rise in the indicator suggests weakness in the labor market, which negatively affects the US dollar. A fall in the indicator and its low value is a sign of labor market recovery and can have a short-term positive impact on the USD.
The initial and continued unemployment claims are expected to remain at pre-pandemic lows, which is also a positive sign for the USD, indicating a stabilization of the US labor market.
Previous (weekly) values for initial jobless claims data: 204,000, 225,000, 216,000, 214,000, 231,000, 226,000, 241,000, 223,000, 226,000, 217,000, 214,000, 226,000, 219,000, 190,000, 209,000, 208,000, 218,000, 228,000, 237,000, 245,000.
Previous (weekly) values on unemployment reapplication data: 1,694,000, 1,710,000, 1,672,000, 1,678,000, 1,670,000, 1,609,000, 1,551,000, 1,503,000, 1,494,000, 1,438,000, 1,383,000, 1,364,000, 1,365,000, 1,346,000, 1,376,000, 1,401,000, 1,401,000, 1,437,000, 1,412,000.
The level of impact on markets is medium to high.
The UK Office for National Statistics (ONS) will publish the country's GDP data for November. This report shows the overall economic performance and has a significant impact on the Bank of England's monetary policy decision. Growth in GDP indicates an improvement in economic conditions that allows (with a corresponding increase in inflation) to tighten monetary policy, which in turn is usually positively reflected in the quotes of the national currency.
The quarterly report, with its preliminary release, can significantly influence the pound. Monthly data does not have such a strong influence on the pound. Nevertheless, traders, who follow the values, probably, will still pay attention to this report.
Data worse than expected/previous values will negatively affect GBP quotes.
Previous values: +0.5%, -0.6%, -0.3%, +0.2%, -0.6%, +0.5%, -0.3%, -0.1%, 0%, +0.7% (Jan 2022).
Forecast for November: -0.1%.
The level of impact on markets is medium.
UK Industrial Production is a leading indicator of the health of the entire British economy. Manufacturing production accounts for 80% of all industrial production. At the same time, the manufacturing sector forms a significant part of the British GDP. Better than expected data and a high reading is seen as positive (or bullish) for the GBP. If the data is worse than the forecast and the previous value, the pound is likely to decline short-term but sharply.
Previous values: 0% (-2.4% y/y), +0.2% (-3.1% y/y), -1.4% (-4.3% y/y), -1.1%, (-3.2% y/y), -0.9% (+2.4% y/y), +1.3% (+1.8% y/y).
Forecast for November: -0.1% (-2.8% annualized).
The level of impact on the markets is medium.
This index is a leading indicator of consumer spending, which accounts for the majority of overall economic activity. It also indicates the confidence of American consumers in the economic development of the country. A high reading indicates economic growth while a low reading indicates stagnation. Generally speaking, a low reading is seen as negative (or bearish) for the USD in the short term. An increase in the indicator would strengthen the USD.
Previous indicator values: 59.7, 56.8, 59.9, 58.6, 58.2, 51.5, 50.0, 58.4, 65.2, 59.4, 62.8, 67.2 in January 2022.
Forecast for January: 61.6.
The level of impact on markets (pre-release) is medium to high.
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