The foreign exchange calendar is light on events scheduled for Monday and Tuesday. On Tuesday, traders will be watching the US existing home sales data and the Richmond manufacturing index.
On Wednesday, focus shifts to the spot services PMI and spot manufacturing PMI for Australia, Japan, the eurozone, the UK and the US, as well as new home sales in the US. Later in the day, all eyes will be on the Bank of Canada’s monetary policy announcement.
On Thursday, we will get advanced data on quarterly GDP, jobless claims, and durable goods orders on a monthly basis for the United States. In addition, the G20 meeting will be held on Thursday and Friday.
On Friday, the Tokyo Core CPI YoY will be released in Japan, and in the US, the Core PCE MoM, Personal Income MoM, Personal Spending MoM, the University of Michigan Revised Consumer Sentiment Index, and the University of Michigan Revised Inflation Expectations will be released.
The consensus for existing home sales in the United States was 3.99 million compared to 4.11 million previously. The outlook is not very promising, with a 0.7% decline in last month’s print, driven mainly by a decline in single-family home purchases. High mortgage rates and rising prices continue to weigh on the housing market, and this trend is likely to continue in this week’s data.
New home sales have also been hit in recent months. For this week’s data, the consensus is 643,000, compared to 619,000 previously. According to analysts at Wells Fargo, “A growing share of builders have offered financial incentives such as price cuts and mortgage rate cuts in recent months, but higher interest rates for longer appear to be hampering their efforts.”
The most anticipated event this week is the Bank of Canada’s monetary policy announcement. The market is expecting a 25 basis point rate cut, which is almost fully priced in, according to analysts at Scotiabank. However, some analysts surveyed by Bloomberg expect the BoC to leave its policy rate unchanged at 4.75%.
Since the last meeting, inflation has shown some signs of slowing, with headline inflation coming in below expectations. At the last meeting, BoC Governor Tiff Macklem pointed to “sustained evidence” of falling inflation. The unemployment rate also rose to 6.4% from 6.2% in June, supporting the possibility of a rate cut. However, some components of core inflation remain active, which may be why some analysts believe the bank will leave rates on hold.
In terms of trading, keeping the interest rate on hold will support the Canadian dollar, while a rate cut is likely to have little impact. Aside from the Bank of Canada meeting, there is nothing important for Canada this week.
On Thursday in the US, the focus will be on the preliminary estimates for quarterly GDP growth, with the market expecting an improvement in this week’s reading. The consensus is 1.9% compared to the previous 1.4%. If this comes through, it would reflect improved consumer spending, higher inventories and slightly stronger investment readings, according to ING analysts.
However, the outlook for the US economy is not very optimistic, and growth is expected to be weaker in the second half of the year. The Federal Reserve is now expected to cut interest rates at its September meeting.
In the US, the consensus for the core PCE price index is 0.2%, compared to 0.1% previously. For personal income on a monthly basis, it is 0.4% compared to 0.5% previously, and for personal spending on a monthly basis, it is 0.3% compared to 0.2% previously.
Although the core PCE is expected to come in at 0.2%, ING analysts highlight some risks to a lower reading. However, a 0.2% reading would still be in line with the Fed’s 2% annual inflation target and is unlikely to change its monetary policy plans. The market is currently pricing in a 25bp rate cut in September.