Inflation impact: Gold soars, Dollar weakens

Giles Coghlan LLB, Lth, MA Financial Source

This week saw a sharp reaction to falling US inflation data: gold soared, the dollar dropped, yields plunged, and stocks moved higher. The interest rate markets now expect a US rate cut in the March of next year. The Reserve Bank of New Zealand held rates but indicated a long hold on rates was likely. The Bank of Canada had its second back-to-back hike this week too, as inflation fears keep restrictive rates in place. Watch incoming labour and inflation data as they continue to shape currency movements in the relentless battle against inflation.

Other key events from the past week

USD: US CPI lifts gold, July 12: The headline and the core US CPI print both missed the forecast this week as inflation continues to track lower. This weak US CPI print gave both gold and silver the expected lift as the USD and yields fell.
NZD: RBNZ on hold, July 12: The latest RBNZ decision saw the Committee affirm rates remaining at current levels for the ‘foreseeable future’. Short-term interest rate markets now see RBNZ rates unchanged through to Oct 2024.
CAD: BOC hikes to 5%, July 12: The Bank of Canada noted that core inflation is proving more persistent and that it will continue to monitor incoming core inflation carefully. BoC Governor Macklem said that further rate decisions will be governed by incoming data and is prepared to raise rates further.

Key events for the coming week

USD: US Retail sales, July 18: Watch this data print carefully, as a big miss could potentially see expectations of further US rate hikes falling sharply, thus pressuring the USD next week. There is also a risk that a big miss would strengthen the USD on risk-off flows.
Seasonal Insights: Weak seasonals for oil are expected ahead. Will they play out again this year?
NZD: Inflation focus, July 18: The RBNZ kept rates unchanged at its last rate meeting, but noted that it has signaled rates being on hold for longer now. So, a big miss in next week’s NZD inflation data could reduce expectations of the RBNZ holding rates for longer and bring forward rate cut expectations.

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Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

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