Inflation reports coming from Australia and New Zealand, the Bank of Canada’s interest rate decision and preliminary US Gross Domestic Product data for the fourth quarter of 2022 will be in the centre stage this week.
Japanese inflation hits 41-year high
According to data published on January 19th, Japan's CPI inflation jumped to a 4-decade high in December 2022, reaching 4% on a year-to-year basis. Economists noted that the central bank would be forced to raise interest rates in order to control rising living costs. Earlier in the week, the Bank of Japan had surprised investors and traders as it kept borrowing costs near zero; the move weakened the Japanese Yen's value against other major currencies.
Christine Lagarde forecasts inflationary pressure
Speaking at a CNBC panel in Davos, Switzerland, the European Central Bank's head Christine Lagarde said that the Chinese economy's reopening would increase inflation in Europe. Lagarde noted that we will have inflationary pressure on many of us, simply because the level of energy that was consumed by China last year was certainly less than what they will consume this year. So, there will be constraints, there will be more inflationary pressure coming out of that added demand.
Reuters poll forecast 2 Fed rate hikes in Q1 2023
The majority of economists polled by Reuters suggested that the US Federal Reserve (Fed) will likely proceed with raising borrowing costs by 25-basis-points at each of its next two monetary policy meetings and then pause its tightening cycle until, at least, the end of the year. The poll showed a nearly 60% probability of a U.S. recession within two years, according to the Reuters report published on January 20th.
New Zealand inflation likely to have dropped in Q4 2022
On Tuesday January 24th Statistics New Zealand will publish its Q4 2022 CPI inflation report. Economists forecast that CPI inflation fell to 7.1% on an annualised basis, in the last quarter of the previous year. New Zealand made the global news headlines as its Prime Minister Jacinda Ardern announced her intention to resign once the Labour Party nominates a successor.
After the prime minister's announcement (Jan.19th), the New Zealand dollar lost ground, however some analysts suggested that the drop was more a function of the global market sentiment than local news. According to a report published by the New Zealand Institute of Economic Research, New Zealand's business confidence in the fourth quarter of last year hit its lowest level since 1974 as companies grapple with higher interest rates, cost pressures and soft demand.
Australia CPI inflation decelerates in Q4 2022?
On Wednesday January 25th, investors and traders will be expecting to scrutinize the Q4 2022 CPI inflation report due to be published by the Australian Bureau of Statistics (ABS). Economists estimate that CPI inflation edged lower, reaching 1.7% on a quarterly basis.
The Australian dollar is among this year's top-performing major currencies with economists suggesting that the country's currency could strengthen even more as the economy could receive additional support from China's growth potential.
Bank of Canada to decide on interest rates
On January 25th the Bank of Canada's (BoC) governing board will convene to decide on interest rates. Although CPI inflation seems to be easing, some economists said that the central bank's policymakers are not ready to pause the interest rate-hiking cycle with some of them forecasting the eighth consecutive increase.
Raising borrowing costs by 0.25% would mean that the BoC's benchmark interest rate would come in at 4.5%, the highest level recorded in the last 16 years. According to a Reuters report published on January 6th, some currency analysts expect the Canadian dollar to rally as the country's economy recovers in the second half of the year. Canada's currency weakened by 6.8% in 2022.
US Durable Goods and Preliminary GDP reports
On January 26th the US economy will be in the spotlight. Market analysts will be expecting December's Durable Goods report to be published by the Census Bureau. Analysts forecast that orders increased by 2.5% in contrast with November's 2.1% decline. A high figure could strengthen the US dollar while a lower one could weaken the US currency.
Following the Durable Goods report, the Bureau of Economic Analysis will release its preliminary GDP Q4 2022 report. Economists suggest that the US GDP grew by 2.8% in the fourth quarter of 2022. A survey published by the Commerce Department on December 22nd showed that the country's GDP expanded by 3.2% in the third quarter, surpassing market expectations. High GDP readings or better than expected figures could be seen as positive for the US dollar, while a low reading could be negative.
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