- US Dollar and stocks are in the green today ahead of the key US CPI report
- All eyes will be on equites if CPI surprises on the upside
- RBNZ remains hawkish; BoC could show a dovish tilt
Dollar and stocks in the green ahead of US CPI
The US dollar is higher today as the market is preparing for this week’s key event. While Thursday’s ECB meeting is crucial, today’s US inflation report could determine the wider market performance until the May 1 Fed meeting.
The market is fixated with a Fed summer rate cut as it continues to price in the first 25bps rate move in July. While this move could happen, the recent data clearly do not point to an economy in need of a boost. Therefore, today’s inflation figure is extremely important.
Forecasts point to a small acceleration at the headline figure to 3.4% year-on-year but expect an easing of the core indicator to 3.7%. These levels are incompatible with a central bank supposed to be on the brink of cutting rates. Interestingly, after the release, three Fed members – Bowman, Barkin and Goolsbee - will be on the wires and possibly comment on the CPI numbers.
An upside surprise could push the dollar higher against the euro, but its performance, once the dust settles down, would depend on the equity market. With the earnings season starting on Friday, a possible realization that the Fed might not cut rates at all during 2024 could create angst in the market.
Bank of Canada meets today; could see a dovish tilt
Not long after the US CPI release, the BoC concludes its meeting. With inflation dropping aggressively and the labour market easing considerably as the unemployment rate reached a 26-month high in March, it looks like the BoC could be the next one to cut interest rates.
However, the recent rally in oil prices is complicating the outlook. Higher oil prices are a boon for the Canadian economy as the WTI oil future is around 10% higher than it was at the March BoC meeting. The loonie remains under pressure since the start of 2024 and a dovish BoC meeting could confirm this trend.
RBNZ stands pat, remains hawkish
The kiwi is higher today against both the dollar and aussie after the RBNZ did not confirm the dovish expectations. Despite the economy moving back in recession and inflation possibly remaining on a downward trend, Governor Orr and co repeated the February 2024 comment that “maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year”.
Gold, bitcoin continue to diverge
Gold continues to record a new all-high in every other session, driven by several catalysts. Interestingly, the almost perfect correlation with bitcoin broke down yesterday with the king of crypto suffering as market participants are possibly thinking ahead to the upcoming halving.