Upcoming Economic Events: US CPI Inflation Data and Central Bank Decisions to Impact Dollar and Kiwi
In the coming week, the focus will be on key economic indicators and central bank decisions that could significantly influence currency markets, particularly the US dollar and the New Zealand kiwi.
US Dollar Recovery and CPI Data
The US dollar has shown a notable recovery recently, bolstered by comments from Federal Reserve Chair Jerome Powell, who indicated that the central bank is likely to maintain its approach of quarter-point rate cuts and is not in a rush to make drastic changes. This recovery has been further supported by positive economic data and safe-haven flows following geopolitical tensions, particularly after Iran's missile strikes on Israel in response to ongoing conflicts involving Hezbollah in Lebanon.
The upcoming US Consumer Price Index (CPI) data for September, scheduled for release on Thursday, is poised to be a critical factor for traders. Recent reports, including the ADP jobs report and ISM non-manufacturing PMI, have led market participants to reassess their expectations for rate cuts, now predicting only a 35% chance of a consecutive 50 basis points reduction in November and around 67 basis points of cuts by year-end.
The CPI data is expected to reveal potential upward pressure on core inflation rates, despite a possible easing in the headline rate due to falling WTI crude oil prices. If inflation remains sticky, it may reinforce the Fed's plan to implement 25 basis point cuts in both November and December, potentially strengthening the dollar further.
New Zealand's Rate Decision and Economic Outlook
Meanwhile, the New Zealand dollar experienced fluctuations last week, influenced by China's aggressive stimulus measures aimed at revitalizing its economy. However, the recent uptick in risk aversion and the US dollar's recovery have led to a pullback in the kiwi's value.
The Reserve Bank of New Zealand (RBNZ) will announce its interest rate decision on Wednesday. Following a 25 basis point cut in August, the RBNZ signaled that more cuts could be on the horizon, with inflation expected to stay near the midpoint of its 1-3% target range. Investors are currently anticipating a 50 basis point cut next week, with additional cuts likely in November, which could bolster the kiwi if the RBNZ confirms these expectations.
UK Economic Data and the Pound's Performance
Among major currencies, the British pound has outperformed significantly this year, but it faced challenges following comments from Bank of England Governor Andrew Bailey regarding potential interest rate cuts. The market is now pricing in a 65% probability of a quarter-point cut in December, following a likely cut in November.
The pound's next test will come with the release of monthly GDP data for August on Friday, alongside industrial and manufacturing production figures and trade data. Disappointing results could validate Bailey's remarks and lead to further declines in the pound's value.
Additional Economic Releases
On Tuesday, the minutes from the latest Reserve Bank of Australia (RBA) meeting will be published, while on Friday, the Canadian employment report for September and the Bank of Canada (BoC) business outlook survey will be closely monitored, especially with a 30% chance of a larger 50 basis point cut by the BoC on October 23.
As these economic events unfold, traders will be keenly observing how they impact the dollar, kiwi, and pound in the global currency markets.