Investors will be closely monitoring Fed Chair Powell’s testimony before the Senate Banking Committee this week. Powell’s comments at the March testimony highlighted the bumpy path back to the Fed’s 2.0% inflation target and the possibility of dialling back on policy this year. However, he stressed the need for confidence in the disinflation process. Markets are expecting Powell to reiterate similar points in the latest FOMC minutes, emphasizing the importance of confidence before reducing the policy target range and noting signs of slowing inflation.
US CPI Inflation Data Release
Thursday will see the release of June CPI data following last week’s softer PCE inflation numbers. Headline CPI inflation is expected to slow to +3.1% year on year, with a +0.1% gain month on month. Core inflation, excluding energy and food components, is anticipated to remain unchanged year on year and month on month at +3.4% and +0.2%, respectively. The release of this data is crucial, especially in light of increased odds of a September rate cut and recent comments from Powell about the progress in bringing inflation back to target. A miss in CPI data could lead to a dovish repricing in rate expectations, impacting US Treasury yields, the dollar, and equities.
Update from the Reserve Bank of New Zealand (RBNZ)
The RBNZ will provide a policy update this week, with markets almost fully pricing in a hold at the meeting. The central bank’s hawkish tone at the May meeting surprised the market, suggesting that the OCR would need to remain restrictive for longer to achieve the 2.0% mid-point inflation target. Governor Adrian Orr indicated limited room for upside surprises in inflation and consideration of increasing the OCR. Despite record migration levels, New Zealand’s economy is facing challenges like paltry economic growth and rising unemployment. Inflation pressures persist, with annual inflation at +4.0% in March, slightly lower than December but higher than RBNZ forecast. Analysts do not expect significant changes in the upcoming meeting due to a lack of economic data since May. The central bank is likely to maintain its hawkish stance, potentially supporting the New Zealand dollar.
This analysis of the upcoming event risks for investors highlights the critical factors that will impact the financial markets this week. From Powell’s testimony to the US CPI data release and the RBNZ’s policy update, investors will need to closely monitor these developments to make informed decisions. The uncertain outcomes of these events could lead to significant movements in currencies, equities, and interest rates, underscoring the importance of staying vigilant and adaptable in today’s volatile market environment.