FX Week Ahead Overview:
- Two central bank rate decisions in the coming days may show divergence: a Bank of Canada that is looking to fight inflation more aggressively; and a Reserve Bank of Australia that is preaching patience.
- UK growth rates may have begun to decelerate at the start of 4Q’21, just as the Bank of England began to signal its intent to look at raising rates.
- Inflation pressures remain historically high across developed economies, and the upcoming German and US inflation reports offer no signs of reprieve.
For the full week ahead, please visit the DailyFX Economic Calendar.
12/07 TUESDAY | 03:00 GMT | AUD Reserve Bank of Australia Rate Decision
The RBA has preached “patience” with respect to its approach towards normalizing policy, abandoning its yield curve control efforts while at the same time continuing its A$4 billion per week pace of asset purchases.
It’s noteworthy, however, that the RBA is now purchasing more debt than the Australian federal government is issuing, leading to speculation that its all but guaranteed that a stimulus winddown will occur when the RBA meets for the first time in 2022 on February 1. The last RBA meeting of 2021, however, may come and go without much fanfare.
12/08 WEDNESDAY | 15:00 GMT | CAD Bank of Canada Rate Decision
The BOC has proved among the more aggressive major central banks in looking to winddown stimulus efforts in the face of persistently higher inflationary pressures, and more signaling may be on deck at the final policy meeting of 2021 that rate hikes could be around the corner.
With the Canadian labor market continuing to strengthen alongside the broader economy outperforming expectations (3Q’21 Canadian GDP beat consensus forecasts), the BOC may be inclined to suggest that a rate hike could arrive sooner than what markets currently have discounted – which is for April 2022.
12/10 FRIDAY | 07:00 GMT | EUR German Inflation Rate (NOV F)
The final reading of the November German inflation rate is unlikely to offer any reprieve. Due in at +5.2% y/y, the release should confirm what it the highest inflation rate dating back to June 1992.
Even so, the European Central Bank appears disinclined to take any mitigative efforts any time soon. Just last week, ECB President Christine Lagarde described the current uptick in price pressures as a “hump,” suggesting that headline inflation readings would soon begin to tumble down. Accordingly, as the chasm between ECB and Federal Reserve policy widens, the Euro is likely to remain under significant pressure.
12/10 FRIDAY | 07:00 GMT | GBP Gross Domestic Product (OCT)
The UK economy has seen growth rates trail its G7 counterparts for the past few months, and the divide is due to widen with the release of the October UK GDP report. Consensus forecasts anticipate the 3-month growth rate to fall to +1% in the August-October period from +1.3% in the July-September period. This would mark the weakest 3-month period of UK growth since the start of 2021, when the UK was under strict lockdown measures.
The data will likely heighten stagflation concerns for the UK, which like other G7 economies is facing high inflation, all the while the Bank of England has been pressing forward with signals that it will soon begin raising interest rates – a nasty combination for the British Pound.
12/10 FRIDAY | 13:30 GMT | USD Inflation Rate (NOV)
Higher inflation persists in the US, so much so that the Federal Reserve and the US Treasury have abandoned the use of the term ‘transitory’ to describe the current situation. If markets were concerned last week with shifts in Fed Chair Jerome Powell’s language with respect to the inflation picture, then the upcoming November US inflation report (CPI) may revive some of those fears (or: volatility in risk assets) ahead of the final Federal Reserve policy meeting of the year next week. Consensus forecasts point to a headline US inflation rate of +6.7% y/y from +6.2% y/y, while core inflation is due to tick higher to +4.9% y/y from +4.6% y/y.
— Written by Christopher Vecchio, CFA, Senior Strategist
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