Top 5 events: Australia inflation rate; US durable goods; Fed meeting; US GDP; Eurozone GDP

07/27 Wednesday | 01:30 GMT | AUD inflation rate (CPI) (2Q)

The Reserve Bank of Australia continues to lag its major counterparts in terms of hiking interest rates, but that may not last for long. According to a Bloomberg News survey, 2Q’22 Australia inflation is due in at +1.8% q/q from +2.1% q/q and +6.2% y/y from +5.1% y/y. With a strong domestic labor market that is continually to punch above analysts’ expectations, the RBA may see the 2Q’22 Australia inflation rate (CPI) report as the evidence it needs to accelerate its rate hike timeline, which should prove supportive for the Australian dollar.

07/27 Wednesday | 12:30 GMT | USD durable goods orders (JUN)

The US economy revolves around consumption trends, given that approximately 70% of GDP is accounted for by the spending habits of businesses and consumers. As such, the durable goods orders reportmake for an important barometer of the US economy. Durable goods are items with lifespans of three-years or longer – from refrigerators and washing machines to cars and airplanes. These items typically require greater capital investment or financing to secure, meaning that traders can use the report as a proxy for business’ and consumers’ financial confidence and health. Rapidly eroding sentiment surveys suggest that American businesses and consumers are pulling back spending thanks to multi-decade highs in inflation. According to a Bloomberg News survey, the June reading is expected to show a loss of -0.4% m/m after the +0.7% m/m gain in May.

07/27 Wednesday | 18:00, 18:30 GMT | USD Federal reserve rate decision & press conference

After the Fed raises rates by 75-bps this week, there is only one 25-bps rate hike discounted through the end of 2022. Coupled with movement in the 2s5s10s butterfly, the market’s interpretation of the near-term path of Fed rate hikes has become decidedly less hawkish. As markets are ever-forward looking, this week’s rate hike from the Fed may not be a bullish catalyst for the US dollar if additional rate hikes this year are not signaled.

The shape of the US Treasury yield curve coupled with declining Fed rate hike odds is acting as a headwind for the US dollar. US real rates (nominal less inflation expectations) have eased back as well, and now that other major currencies are seeing their own real rates rise thanks to more aggressive central bank action, the monetary policy expectations gap that the US dollar built up over the past few months has narrowed, eroding the US dollar’s relative advantage.

07/28 Thursday | 12:30 GMT | USD gross domestic product (2Q)

The US economy is clearly going through a rough patch, at least when you look at topline GDP estimates. According to a Bloomberg News survey, the initial 2Q’22 US GDP report is expected at +0.5% annualized from -1.6% annualized in 1Q’22. However, based on the data received thus far about 2Q’22, the Atlanta Fed GDPNow growth forecast is now at -1.6% annualized, down from -1.5% on July 15. The downgrade was due to “second-quarter real residential investment growth [decreasing] from -8.8% to -10.1%.”

But would this constitute a recession? Not necessarily. According to NBER, a recession is “a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” But for US real GDP, these other conditions have not yet been met.

07/29 Friday | 09:00 GMT | EUR gross domestic product (2Q) & inflation rate (HICP) (JUL)

The European Central Bank is raising rates to arrest inflation pressures, but growth is slowing thanks to significant pressure in energy markets resulting from Russia’s invasion of Ukraine and the ensuing sanctions. Fragmentation of the bond market is a concern, with echoes of the 2010s Eurozone debt crisis getting louder. Needless to say, the Eurozone is in a tough spot. The July Eurozone core inflation rate is due in at +3.8% y/y from +3.7% y/y, while the initial 2Q’22 Eurozone GDP report is expected at +0.2% q/q from +0.6% q/q and +3.4% y/y from +5.4% y/y. This could be the tip of the iceberg; 3Q’22 Eurozone GDP appears to be in much worse shape.

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