FX Week Ahead - Top 5 Events: Chinese, Mexican, US Inflation Rates; BOC & ECB Rate Decisions

06/09 WEDNESDAY | 01:30 GMT | CNY INFLATION RATE (MAY)

Like other central banks dealing with a statistical base effect coupled with rapidly appreciating commodity price and supply chain constraints, the People’s Bank of China may look through any spike in the inflation figures that would, in an otherwise normal environment, suggest that a reduction in monetary support might be considered. And just recently, the PBOC mandated that financial institutions must increase the ratio of their foreign exchange deposits to 7% from 5%, forcing Chinese domestic market players to rebalance away from the Yuan, a move that may help support inflation pressures. Either way, due in at +1.6% from +0.9% (y/y), the headline May Chinese inflation reading may not influence Yuan rates, one way or the other.

06/09 WEDNESDAY | 11:00 GMT | MXN INFLATION RATE (MAY)

According to a Bloomberg News survey, the May Mexican inflation rate (CPI) is expected to show a slight deceleration to +5.86% from +6.08% (y/y). Now well into the base effect period around the start of the pandemic, Banxico’s dovish inclinations are still being held at bay.

Recently, Mexican President Andres Manuel Lopez Obrador announced that he would not be nominating current Banxico Governor Alejandro Diaz de Leon for a second term, noting the replacement would be one “with a social dimension, one who is in favor of a moral economy.”

The implicit understanding is that the next Banxico Governor may not be has hawkish as their historical predecessors. In turn, Banxico may tolerate higher inflation without responding with corresponding rate hikes henceforth, a potential demerit against an otherwise seemingly bullish Peso.

06/09 WEDNESDAY | 14:00 GMT | CAD BANK OF CANADA RATE DECISION

The BOC meets this week for its June policy meeting, bringing CAD-crosses into the limelight for the next several days. Having already tinkered with its QE program (so it doesn’t run into its self-imposed statutory limit), the BOC now appears that it will keep its main policy in place for the next several months. In fact, in recent weeks, BOC Governor Tiff Macklem expressed confidence in the decision to begin withdrawing stimulus, reaffirming the perception that the BOC has a somewhat hawkish bias relative to its other major peers.

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