FX Week Ahead – Top 5 Events: Fed Speeches; Canada, Eurozone, Japan, New Zealand Inflation Rates

FX Week Ahead Overview:

• After a new multi-decade high in US inflation rates was revealed last week, Fed policymakers will hit the lecture circuit to try and calm the markets’ nerves.
• Inflation data from Canada and New Zealand this week should reinforce market expectations that further rate hikes are coming from the Bank of Canada and Bank of New Zealand.
• However, any upside in Eurozone or Japanese inflation figures are still likely to be dismissed by the Bank of Japan and European Central Bank.

For the full week ahead, please visit the DailyFX Economic Calendar.

ALL WEEK | USD Federal Reserve Policymakers’ Speeches

Absent an April Federal Reserve rate decision, policymakers are hitting the lecture circuit in full stride over the coming days as market anxiety continues to rise over the latest batch of US inflation data. The March US inflation rate report (CPI) produced another 40-year high in price pressures, helping reinforce odds that the FOMC will deliver a 50-bps rate hike when they meet next in May. Due up this week: Bullard (Monday, 20 GMT); Evans (Tuesday, 16:05 GMT); Daly and Evans (Wednesday, 14:30 GMT); and Powell (Thursday, 15 GMT and 17 GMT).

04/20 WEDNESDAY | 12:30 GMT | CAD Inflation Rate (CPI) (MAR)

Canadian inflation figures continue to march higher, keeping pressure on the Bank of Canada to raise interest rates quickly. According to a Bloomberg News survey, the March Canada inflation rate rose by +0.9% m/m from +1% m/m, clocking in at +6.1% y/y from +5.7% y/y. With no meeting in May, rates markets are expecting the BOC to act aggressively when policymakers meet next in June, with a 91% chance of a 50-bps rate hike currently discounted. As a rule of thumb, if rate hike odds extend higher, then the Canadian Dollar should remain well-supported.

04/20 WEDNESDAY | 22:45 GMT | NZD Inflation Rate (CPI) (1Q)

The New Zealand economy continues to run hot, with headline inflation (as measured on a quarterly basis) already running at its highest level in 30-years. The 1Q’21 New Zealand inflation rate report (CPI) should see a fresh multi-decade high in price pressures, with a Bloomberg News survey forecasting price growth of +2% q/q from +1.4% q/q and +7.1% y/y from +5.9% y/y. The data should reinforce what is an already-hawkish Reserve Bank of Zealand: rates markets are discounting a 61% chance of a 50-bps rate hike at the May meeting.

04/21 THURSDAY | 09:00 GMT | EUR Inflation Rate (HICP) (MAR F)

The final March Eurozone inflation rate report (HICP) isn’t anticipated to showcase any changes from the preliminary readings, with forecasters pegging headlines price pressures up by +2.5% m/m and +7.5% y/y, and the core reading up by +3%. As the European Central Bank outlined last week, an end to stimulus efforts in 3Q’22 remains the most likely course of action, which leaves the Euro at a disadvantage in the near-term: while other major central banks are raising rates to try and curb price pressures, the ECB will not. Rates markets continue to price in July for the first ECB rate hike, but that seems likely to disappoint.

04/21 THURSDAY | 23:30 GMT | JPY Inflation Rate (CPI) (MAR)

Price pressures in Japan are continuing to push higher as coal, gas, and oil prices continue to rise – a major problem from the energy import-dependent Japanese economy. According to a Bloomberg News survey, the March Japan inflation rate report (CPI) is due in at +1.4% y/y, the highest reading since October 2018. But markets don’t seem convinced that rising inflation rates will inspire the Bank of Japan to act anytime soon, as no rate moves are discounted through the end of 2022. It may take USD/JPY rates reaching 130.00 before the BOJ changes course.

— Written by Christopher Vecchio, CFA, Senior Strategist