The Week Ahead – Not so good news

USDCAD steadies as Canada’s CPI looms

The Canadian dollar awaits breakout ahead of key inflation data. A blowout Canadian job report showed sticky inflation and put the Bank of Canada in a tricky situation after it announced to pause rate hikes, making market participants reconsider their bets on its move into the year. Even though interest rates have reached 4.5%, the highest level in 15 years, the central bank is still expected to press further. Needless to say the upcoming CPI will carry significant weight on policymakers’ roadmap. A strong reading would shift power to the hawks’ side and support the loonie which is trading between 1.3260 and 1.3700.

NZDUSD pulls back ahead of RBNZ decision

The New Zealand dollar turns south ahead of a potential RBNZ rate hike. The market is mostly split between a 0.25% and 0.50% increase this week, though a surprise jumbo-sized 0.75% cannot be ruled out. Flat CPI in Q4 and falling two-year inflation expectations might give the doves an edge. A moderate hike would suggest that policymakers may stay patient and wait for restrictive financial conditions to filter through to consumer prices. The forward guidance and the underlying tone will likely dictate volatility in the days following the decision. The 3-month low at 0.6070 is the next support and 0.6520 remains a strong cap.

XAUUSD falls as US dollar stage recovery

Gold falls as strong US economic data favour the dollar. With inflation and jobs metrics repeatedly beating market estimates, traders may need to think twice before jumping to the conclusion that the Fed is done with the tightening. Concerns grow that Powell & Co might have more rate hikes up their sleeves, which would push the dollar higher along with Treasury yields. The former has climbed to a six-week high while the precious metal is set for its third weekly drop. The inverse relationship could be amplified should more hawkish comments come out of the central bank. The price is falling towards 1730, 1880 is the first hurdle.

SPX 500 stays high as market remains hopeful

The S&P 500 consolidates its gains as US CPI grinds lower. The annual US inflation rate eased to 6.4% last month but not as fast as the market wanted to see. This means that the Fed would at best pause its tightening campaign in the near future without giving in to cutting rates. Still, the downtrend in consumer prices is enough of good news even if it leaves the most aggressive bulls hanging. Weaker Q4 earnings did not deter investors. The bright side would be that low forward expectations may give companies a better chance to beat them later on. The index is heading towards 4300 with 3900 as the first support.

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