FX Markets Look to Chinese, UK, & US CPI, Yellen Testimony Midweek

FX Markets Look to Chinese, UK, & US CPI, Yellen Testimony Midweek

13 February 2017, 13:53
Mohammad Soubra
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FX Markets Look to Chinese, UK, & US CPI, Yellen Testimony Midweek


Talking Points:

Inflation data from across the globe into focus this week; is the world moving away from lowflation?

- Fed Chair Yellen heads to Capitol Hill for her semi-annual Humphrey-Hawkins testimony.

- The Aussie should see volatility throughout the week, between Chinese CPI and Australian labor figures.

 

02/14 Tuesday | 01:30 GMT | CNY Consumer Price Index (JAN)

As Chinese policymakers haveopted for more stimulus amid stresses in credit marketsin recent months, we have seen market participants watch Chinese inflation figures as a proxy for domestic demand.Declines in price levels have been viewed in the context of serious stresses on domestic consumption and economic growth. With the Chinese Yuan having materially weakened on a year-over-year basis versus the US Dollar, odds are that incoming inflation data shows faster price pressures in January. The risk is asymmetrical here: a strong inflation reading could ease concerns only somewhat; while disappointing inflation reads will fan the flames of market uncertainty ahead of this week’s G20 meeting. As a liquid and transparent currency, the Australian Dollar should prove highly sensitive to the data.

Pairs to Watch: AUD/JPYAUD/USDUSD/CNH

02/14 Tuesday | 09:30 GMT | GBP Consumer Price Index (JAN)

Tuesday’s latest UK inflation reading is expected to show that consumer prices rose by +1.9% y/y, the third successive uptick in UK prices and back to levels last seen in June 2104. Analysts expect higher fuel prices to continue to feed through, while higher food prices will also be of note. The British Pound’s post-Brexit weakness will also force manufacturers, retailers and service companies to lift their prices due to higher import prices. Looking ahead, UK inflation is expected to be capped later on in the year as Brexit negotiations weigh on investment decisions, while any slack in the labor market will ease domestic price pressures, especially wage costs. Bank of England Governor Mark Carney has repeatedly said that he will allow only a limited overshoot of the central bank’s around +2% inflation target in order to get the UK economy on a strong footing.

Pairs to Watch: EUR/GBPGBP/JPYGBP/USD

02/14 Tuesday & 02/15 Wednesday | 15:00 GMT | USD Fed Chair Yellen Testifies in House, Senate

Fed Chair Janet Yellen is making her semi-annual trek to Capitol Hill this week, where she’ll testify in front of both House and Senate panels regarding the state of the US economy. Regardless of whatever prognostications exist about the state of Trump fiscal stimulus program, Fed Chair Yellen is likely to retain a relatively hawkish view given signs of sturdy domestic demand, a tightening labor market, and rising inflation pressures. As such, we should look to her commentary to not only reinforce the notion that the Federal Reserve will raise rates twice this year; but also that there is potential for three rate hikes, if data continues along its current path. With market having ‘locked-in’ rate hikes for June and December 2017, we’ll be watching the March Fed funds futures as a gauge for how markets are viewing the commentary. Given the low expectations (30%), an overtly hawkish Yellen could easily ignite the US Dollar should discussion over a hike in Q1’17 emerge.

Pairs to Watch: EUR/USDUSD/CADUSD/JPY

02/15 Wednesday | 13:30 GMT | USD Consumer Price Index (JAN)

According to a Bloomberg News survey, US consumer prices increased by +0.3m/m again in January, or by +2.4% from +2.1% (y/y). The core readings should be similar, at +0.2% m/m (unch), and at +2.1from +2.25 (y/y). These figures aggregately are just starting to push through the Fed’s +2.0% medium-term target, which not only means they should be strong enough to keep the Fed on track to hike rates at least twice this year, but perhaps begin to raise expectations for a move in March (only a 30% chance of a hike, per Fed funds futures). A faster rate of inflation may be the result of the tightening labor market, which has accelerated wage growth in recent months.

Pairs to Watch: EUR/USD, USD/CAD, USD/JPY

02/16 Thursday | 00:30 GMT | AUD Employment Change & Unemployment Rate (JAN)

Australian employment change beat expectations in December, adding 13,500 new jobs against expectations of 10,000, the third month in a row that the economy has added more jobs than expected. Unemployment increased by 14,700 to 741,000 while seasonally adjusted unemployment edged marginally higher to 5.8% from 5.7% in November. The latest annual IMF report on the Australian economy paints a reasonably rosy picture with the economy enjoying “robust growth despite the commodity price and mining investment bust,” according to the report. And while the IMF praises the government for strong policy support, the report highlights rising unemployment and a lack of business investment outside of the mining sector.

Pairs to Watch: AUD/JPY, AUD/NZD, AUD/USD 

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