British Pound, New Zealand and Canadian Dollars to See Major Volatility

The week ahead is an important one in terms of inflationary data for some of the world’s most advanced economies, with three countries releasing their respective consumer price indexes. The New Zealand economy, which recently has seen its rate hike expectations climb dramatically over the past few weeks despite a rate hike in March following the earthquake in Christchurch, New Zealand, could see the ending of what has been a short-lived accommodative monetary policy if inflationary pressures are too high. Similarly, evidence for another European Central Bank rate hike could be on the horizon if German price pressures continued to rise at an increasing rate, as they have for the past few months. Finally, of note, two central banks will be releasing the minutes of their most recent policy meetings, which will give the markets insight as to when other central banks, besides the European Central Bank, will begin the ‘normalization’ of their key interest rates.

• New Zealand Consumer Price Index (YoY) (1Q): April 17 – 22:45 GMT

The accommodative period of monetary policy from the Reserve Bank of New Zealand may be close to ending following rising price pressures in the fourth quarter, which are certainly to have picked up following the 50-basis points rate cut in March on the heels of the earthquake in Christchurch, New Zealand. Consumer prices surged 4.0 percent on a year-over-year basis in the fourth quarter, well above the RBNZ’s medium-term mandate. Accordingly, rate hike expectations are rising, in line with the recent surge in commodity prices which has sent funding back into the antipodean nation: the Overnight Index Swaps has 57.0-basis points priced in over the next 12-months, though puts a 0.00 percent chance of a rate hike at the central bank’s next meeting. Nonetheless, the continued build-up of price pressures could change the market’s assumption in a heartbeat if the data released on Sunday surprises.

• Canadian Consumer Price Index (YoY) (MAR): April 19 – 11:00 GMT

Canadian consumer prices are forecasted to continue have risen in March, expected to have gained 2.8 percent. A reading over 2.0 percent would mark the sixth consecutive month in which prices have risen at such a rate or greater; price pressures have been building since October 2009, as September of that year was the last time there was a deflationary environment. Inflation in Canada has not been a main concern, like in Europe, as inflation has remained at or below a 2.4 percent clip since the recession. The Bank of Canada noted earlier this week in their rate decision that a stronger Loonie over the past few months have helped contain inflation, which is why the central bank has been unwilling to change its accommodative stance. It is worth noting that short-term price action will likely be sparked at a reading of 2.8 percent, as it would certainly require dialogue to increase among Bank of Canada officials about the prospect of a rate hike sometime in the second half of 2011.

• German Producer Prices (YoY) (MAR): April 20 – 06:00 GMT

As evidenced by the European Central Bank’s decision to raise the key interest rate by 25-basis points to 1.25 percent, rising price pressures are a bona fide concern in Europe. Inflation in Germany has been the primary evidence that the European Central Bank has used for their rate hike; producer prices have been gaining an increasingly accelerating rate over the past eleven months: the German year-over-year PPI reading has been positive every month since April, with only one month – August – experiencing a rate of change less than the previous month (August PPI was 3.2 versus July PPI of 3.7; PPI expanded to 3.9 in September and has moved north unabated since then). Accordingly, the forecasted producer price reading for March is 6.5 percent. Another jump in German producer prices is expected, as evidenced by the rate hike, so the data for April will be more important to the European Central Bank as to whether or not raise rates once again.

• Bank of England Minutes (APR): April 20 – 08:30 GMT

The Bank of England kept their rates on hold at their meeting last week, as expected, at 50-bps at their meeting on Thursday, despite the continued build-up of price pressures in the British economy. The CPI-EU Harmonized grew by 4.4 percent year-over-year in February. The PPI confirms that inflationary pressures are indeed building; at 3.0 percent in March year-over-year; prices will continued to be passed onto consumers, as noted by the CPI rising by 4.0 percent in March, though the reading was less than expected. Despite all of this data, with policymakers voting to keep rates on hold, one has to wonder if concerns are growing over an economy that is seemingly sliding back into a regression, considering the economy slowed by 0.5 percent in the first quarter according to the most recent GDP reading.

• Canadian Retail Sales (MoM) (FEB): April 21 – 12:30 GMT

Retail sales data surprised economists again last month, declining 0.3 percent versus a 1.0 percent forecasted gain. The losses in January were attributed to a slump in demand for automobiles, which suggests that consumer spending remained high in other areas. Accordingly, a rebound is expected, with forecasts signaling a 0.5 percent expansion. Nonetheless, consumer spending is expected to slow in 2011, as the government reigns in the budget and enacts austerity measures that will likely force up the savings rate for the Canadian consumer. A gain in retail sales figures for February would be the first such growth since November; sales have dropped two straight months.

Share this post