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Week In Review: Aug 15th – Aug 19th

US Inflation eases

Last Wednesday, markets were taken aback as US inflation eases to 8.5% YoY from 9.1% YoY. The reading is lower than the forecast and this has led to a dollar sell-off. As a result, commodities and US equities rallied.

Nasdaq gained 2.1%, Dow Jones is up 1.6% and S&P 500 rose to 2.1%. Meanwhile, gold soared to its one month high at $1,807 along with silver at $20.80.

Can this be a sign that inflation has already peaked?  Fed’s aggressive approach to monetary tightening will start to diminish if inflation continues to slow down. The question now is will Fed push through with 75bps hike in September or could it be just 50bps? Given that the inflation starts to cool down, it looks like the latter has a higher probability of happening in this scenario.

Will RBNZ take a dovish stance?

The Reserve Bank of New Zealand (RBNZ) is set to announce its monetary policy statement on Wednesday including its latest economic and policy rate forecasts.

The recent data did not bode well for the kiwi. Unemployment rate rose to 3.3% which is higher than the expected forecast of 3.1%. Last central bank meeting in July, slowing growth has come to their attention. In addition to that, the aftermath of covid lockdowns in China has slowed down their economy and this a great impact to New Zealand as they are dependent on China when it comes to exports.

RBNZ is expected to lift OCR by 50 bps this week. Whether it is 50bps or 25bps, as long as concerns about slowing growth and risks of recession has been stressed out, this would result to a sell-off in NZD.

FOMC meeting minutes in focus

Last FOMC meeting in July, the Committee decided to hike rates by 75bps. What is going to happen now in September? Given the fact that the inflation starts to cool down, will they still employ an aggressive approach to monetary tightening, or will they probably start to slow down too? We will find out more on the upcoming FOMC meeting this Wednesday. 

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