Yesterday, the United Kingdom delivered its inflation numbers for the month of August, both core and headline ones on a MoM and YoY basis. During the early hours of the Asian morning today, New Zealand delivered its GDP figures for Q2 on a QoQ and YoY basis. Later in the day, the main event on the economic calendar might be the US retail sales figures for the month of August.
UK Inflation Continues To Rise
Yesterday, the United Kingdom delivered its inflation numbers for the month of August, both core and headline ones on a MoM and YoY basis. All readings managed to beat their initial expectations, with the largest increases seen in the core MoM and the headline YoY figures. The core MoM one came out at +0.7% against the forecasted +0.4%. The headline YoY figure showed up at +3.2%, beating the initial forecast of +2.9%. Despite the initial expectations already being much higher than the previous readings, the actual numbers are making some analysts worry that inflation is picking up the pace way too rapidly. Last time the YoY CPI figure was that high, was back in April 2012, when the reading came out +3.5%. The pound managed to keep the upper hand against some of its major counterparts, except for the Japanese yen and commodity-linked currencies, such as NZD, AUD, NOK and CAD. CAD and NOK were stronger mainly because of the sharp rise in oil prices yesterday.
But high inflation numbers should not be a big surprise, as since Britain’s exit from the European Union, consumer goods have been rising in cost. Certain goods are mainly imported from Europe and because of the “divorce”, UK is now struggling to meet consumer demand. One of the issues here are the delays on the UK border check points. Also, for some European producers it has become more expensive and more difficult to export to UK, forcing them to abandon the British market. Because of the additional logistical costs and bureaucratic inconvenience, the end good is becoming more expensive on the British grocery store shelves, which is affecting the pockets of the British consumer in a negative way.
Let’s not forget that the Bank of England has the inflation target set at 2%. If the inflation rate is too high, this may cause issues for businesses and consumers in the medium-term, as it would become difficult for them to set prices and manage spending respectively. If inflation continues to stay at higher levels, the BoE will have to intervene by raising the interest rate, which currently sits at +0.10%.
GBP/CAD – Technical Outlook
Overall, GBP/CAD is still trading well above a short-term upside support line drawn from the low of August 24th. However, from the beginning of this week, the pair is seen drifting lower. In the very near term, the rate may continue sliding towards that upside line, but we would still class this move as a temporary correction.
If the pair falls below the 1.7454 hurdle, marked near the lows of September 10th and 15th, that would confirm a forthcoming lower low, possibly clearing the way to some lower areas. GBP/CAD might then travel to the 1.7400 obstacle, or to the 1.7380 level, marked near an intraday swing high of September 6th.
On the upside, if the rate suddenly accelerates and climbs above the 1.7515 hurdle, marked by an intraday swing low of September 15th and an intraday swing high of the same day, that might attract a few more buyers into the game. GBP/CAD could then travel to the current highest point of September, at 1.7569, a break of which might set the stage for a move to the 1.7593 zone. That zone is marked by an intraday swing high of August 20th.
New Zealand GDP and Australian Employment
During the early hours of the Asian morning today, New Zealand delivered its GDP figures for Q2 on a QoQ and YoY basis. The QoQ figure was initially believed to come out at +1.3%, which was lower than the previous +1.6%. The actual reading was much higher, at +2.8%. The YoY figure was expected to show an improvement as well, because the initial forecast was sat at +16.3% and the previous reading was only at +2.4%. The actual number came out at +17.4%. With such strong numbers, the RBNZ may raise the interest rate earlier, which is currently sat at +0.25%. The New Zealand dollar reacted positively after the news release, however, that was just a temporary impulse and the currency got back to the original spot, where it was before the data announcement. It seems that the currency could mainly stay vulnerable to the broader developments in the global economy.
Also, we have already received employment numbers from New Zealand’s neighbouring country Australia. Although the unemployment rate improved and managed to beat the initial forecast of 4.9%, coming out at 4.6%, the employment change figure showed up as a huge disappointment. The previous reading was at +2.2k, the expectation was already for a -90.0k, but the actual number was at -146.3k. At the time of writing, the Australian dollar is slightly losing its ground against its major counterparts.
AUD/NZD – Technical Outlook
After reversing lower in the end of March, AUD/NZD has been on a freefall since then. On the shorter timeframe, the pair continues to drift lower, while trading below a short-term tentative downside resistance line taken from the high of September 7th. As long as that downside line remains intact, we will stay bearish, at least in the near term.
A drop below yesterday’s low, at 1.0279, would confirm a forthcoming lower low, potentially opening the way for a further decline. AUD/NZD could travel to the 1.0250 obstacle, a break of which might clear the path to the 1.0205 level. That level marks the lowest point of April 2020.
Alternatively, if the aforementioned downside line breaks and the rate rises above the 1.0328 hurdle, marked by the high of September 14th, that may invite a few more buyers into the arena. AUD/NZD might drift to the 1.0367 obstacle, or to the 1.0381 hurdle, marked by the high of September 10th. If the buying doesn’t stop there, the next potential resistance target could be at 1.0415, marked by an intraday swing high of September 7th.
US Retail Sales
Later in the day, the main event on the economic calendar might be the US retail sales figures for the month of August. There is currently no forecast available for the YoY number, but we know that the previous one came out at +15.78. Although the previous reading looks quite high, the indicator has been on a decline from May, when the April number was delivered at 51.22%. That said, such huge fluctuations are a cause of the pandemic and how the US Government has been dealing with the social restrictions. The MoM retail sales reading is believed to have improved slightly, going from -1.0% to -0.8%.
Other sets of data, which will be released by the US are the weekly initial and continuing jobless claims. Both readings are believed to have worsened slightly. The initial jobless claims are expected to have gone from 310k to 330k. The continuing jobless claims are believed to have increased slightly from 2783k to 2785k.
As For The Rest Of Today’s Events
The US will deliver its Philadelphia Fed manufacturing index for September. The current forecast is for the number to have declined slightly, going from 19.4 to 18.8. Even if the number fails to beat the expectation and the figure remains above zero, it still means that the conditions continue to improve, just at a slower pace.