Breakdown of the latest developments on the global exchanges
Apr 11, 2021, 11:06 AM GMT

The Week Ahead - U.S. Inflation and Sales Data; RBNZ Rate Decision

An action-packed week ahead with inflation and retail sales data in the U.S., RBNZ interest rate decision in New Zealand

The U.S. Economy Has to Grapple with Soaring Inflation

This week's most important economic release will be the U.S. inflation data, which is scheduled for publication on Tuesday. Soaring prices have been the primary topic of discussion as of late, as soaring inflation can become a new hindrance to global recovery.

According to the preliminary forecasts, the latest consumer prices survey of the Bureau of Labour Statistics (BLS) will show a 0.5 per cent growth in CPI from the previous month. Given the 0.4 per cent uptick that was recorded in February, this would mean that headline inflation in the U.S. would have grown by nearly 1 per cent over the past two months.

The US consumer price index is expected to rise by 0.5% in March. Inflation is rising fast

If the initial forecasts are realised, this would mean that headline inflation will reach 2.2 per cent in March, thereby exceeding the 2.0 per cent symmetric target level. The Federal Reserve expects the rate to rise moderately above the target in the short-term, eyeing an eventual consolidation around 2.0 per cent in the longer term.

Despite this, however, investors are still getting scared of the potential ramifications of inflation getting out of hand. The rising yields in the bonds market elucidate these concerns.

The primary concern is that FED's accommodative policy stance is causing consumer demand to soar at a rate that exceeds the initial projections. The faster-than-anticipated recovery poses the threat of overheating the economy, which could in itself impede the underlying recovery.

Heightened production costs already encapsulate these fears. The Federal Reserve could therefore consider tightening its support levels in a bid to negate the risk of overheating the economy, depending on the upcoming CPI numbers.

RBNZ Likely to Remain Accommodative in April

The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand is scheduled to meet on Wednesday. The Committee is expected to maintain the near-negative Official Cash Rate (OCR) unchanged at 0.25 per cent.

New Zealand's economy is enjoying the global pick-up in activity, which is why the MPC is likely to remain on course until the long-term recovery objectives are achieved fully. Given the economic situation in the Pacific area, the RBNZ is likely to follow suit to RBA's actions from last week.

New Zealand inflation remains subdued, which is why the RBNZ is likely to maintain its accomodative monetary policy stance in April

The RBNZ has no reasons to consider tightening the level of monetary support at the present rate because New Zealand's economy is not yet gripped by soaring inflationary pressures. With that in mind, traders should expect somewhat heightened volatility on Wednesday on all currency pairs involving the kiwi.

U.S. Retail Sales to Continue Seesawing in March

On Thursday, the Census Bureau in the U.S. is scheduled to publish the latest retail sales data for the previous month. According to the preliminary market forecasts, a positive rebound of 5.3 per cent is likely to follow the 3.0 per cent contraction that was recorded in February.

February's decline was owing to unusually cold weather in the southern parts of the U.S., which affected demand and production in two starkly different ways. The momentary disruption is now over, which is why retail sales are projected to seesaw back into positive territory.

US retail sales are expected to recuperate in March on hightened consumer confidence

Because of these three crucially important events this week, the NZDUSD pair is likely to experience especially high volatility over the next several days. The New Zealand dollar continues to give way to the recuperating greenback.

As can be seen on the 4H chart below, the NZDUSD pair is establishing a broad downtrend, despite the emergence of a minor bullish correction in the short term. The correction has reached the 100-day MA (in blue) and the 50-day MA (in green), both of which are serving as floating resistances, which is why the underlying bullish commitment is about to be checked shortly.

The MACD indicator has already registered a bearish crossover in the underlying momentum, which substantiates the expectations for another bearish reversal in the near future.

Even still, the bullish correction can be extended as high as the 0.71000 resistance, which served as a previous swing low, before the bears manage to regain control.

The NZDUSD is expected to continue developing a major downtrend after a minor bullish correction is completed

Other Prominent Events to Watch for:

Monday - BOC Business Outlook Survey in Canada; 10-y Bond Auction in the U.S.; NZIER Business Confidence in New Zealand; EU Retail Sales y/y.

Tuesday - NAB Business Confidence in Australia; Chinese Trade Balance; 30-y Bond Auction in the U.S.

Wednesday - ECB President Lagarde Speaks; U.S. Crude Oil Inventories; FED Chair Powell Speaks.

Thursday - Australia Unemployment Rate.

Friday - China GDP q/y; Preliminary Michigan Consumer Sentiment Index m/m Preliminary.