Fed Blackout Week

Week Ahead 

This week's data docket is relatively light, with the bulk of the releases focused on the housing sector. The street will also get a break from Fedspeak this week as monetary policymakers will be in their communications blackout ahead of next Wednesday's FOMC meeting. Recall that at last week's Humphrey-Hawkins testimony, Chair Powell indicated that Fed officials would likely discuss tapering details. And depending on how candid the FOMC taper signalling is, it could force the market to reprice that probability at the September 22 meeting. A sooner than expected taper will bring forward with it rate hike expectations, bullish for the dollar and bearish for gold and other rate-sensitive and long duration assets. 

Last week's FX look back

The first half of the week focused on US CPI after another substantial jump in used car prices led to a sharp increase in the June headline and triggered USD demand across the board. But the buying cooled off after Fed Chair Powell testified to the House Panel & Senate where he essentially held the dovish line that meeting the 'substantial progress' test for tapering was still "ways off" and reiterated inflation is "transitory" slowed but didn't quash USD rally and selling emerged. On the whole, FX markets have traded narrow ranges – it's pretty clear that the USD continues to be frustrating to anyone who is looking for a clear trend at the moment.

NZD – NZD has been in focus this week as a strong CPI beat (3.3% year-on-year, a 10-year high) reinforced expectations for an August hike (currently 75% priced) following a hawkish RBNZ this week. There are concerns around how New Zealand & Australia's zero covid programmes will affect them domestically as other economies take off, and both lag in their vaccine programmes. 

NZ CPI surprised the topside, and price action got very messy over the print, taking NZDUSD to an overnight high of 0.7050 and the AUDNZD cross down to 1.0576. The sense of urgency for the RBNZ has undoubtedly increased, and a hike in August could well be on the cards. 

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