Let's hear from Alex Kuptsikevich, Senior Financial Analyst at FxPro, who answers FXMAG.COM team questions. We asked Alex about Australian CPI, UK PMIs, British pound and the US GDP.
This week Australian CPI goes public what do you expect from the print and the RBA decision on February 7th?
On average, market analysts expect inflation to accelerate to 7.5%. It is better to be prepared for lower data and a slowdown in CPI to 7.2-7.3%. The Australian dollar has risen more than 14% from its October lows, helping to reduce external price pressures. Also worth noting is the 14.6k drop in employment in December and the stubborn unemployment rate of 3.5% for the past six months. In other words, the labour market needs to do more to accelerate inflation. At the same time, the construction market has been in steady decline since October 2021, which is a significant negative signal for the economy. As in most developed countries, such a disposition could already be working towards lower annual price growth. If we are right, AUDUSD could give back some of January's gains as the market reassesses the outlook for monetary policy.
The weak data reinforced the double top formation signal in the GBPUSD
The UK PMI indices recorded another month of declining activity. However, the rise in the manufacturing PMI from 45.3 to 46.7 suggests that the rate of decline is slowing. The services PMI fell from 49.9 to 48.0, clearly indicating that the recession is spreading to the broader economy. The CBI's industrial orders balance was also a nasty surprise, falling from -6 to -17, the lowest since February 2021. The weak data reinforced the double top formation signal in the GBPUSD, which is turning lower for the second time since mid-December as it approaches 1.2450. Traders are likely betting that the Bank of England will struggle to maintain the pace of policy tightening in light of the economic data released. This is not for nothing, given the reversal in the inflation trend.
The GDP report has a good chance of delivering an unpleasant surprise, pushing the dollar further down
The impact of US GDP on the markets isn't a trivial issue. Much depends on the balance between growth and inflation. If US growth comes in at or above expectations, the Fed may have more incentive to keep raising rates for longer than the markets are currently pricing in. This would be negative for equities and oil but positive for the dollar. Such a market reaction is long overdue. However, it is still too early to confidently bet on the Fed's hawkishness to take on the entire market. The GDP report has a good chance of delivering an unpleasant surprise, pushing the dollar further down. Still, it is highly likely to push equities and metals higher in the short term.