The Week Ahead – Slowing inflation may temper tightening fever – Orbex Forex Trading Blog

AUDUSD retreats as RBA may pause sooner

The Australian dollar weakens as traders bet the RBA would halt its rate hikes sooner. Inflation slowed to a 13-month low in May, which could prompt the central bank to ease its hawkish tone. The market reacted by pricing in a lower chance of a hike this week, and put the peak rate at 4.35%, down from 4.6% previously. However, it might be too soon to expect the RBA to pause once for all. Rising labour cost and housing prices are still rather thorny issues as they are key metrics in defining the next policy move. An unwavering hawkish stance may push the Aussie back towards 0.6900, or 0.6500 would be at risk.

USDCAD recovers as BoC hike bets recede

The Canadian dollar weakens as the market trims its bets of a BoC hike this month. Canada’s inflation rate cooled to 3.4% in May, its slowest pace in two years, thanks to lower energy prices. As the figure turns out to be roughly in line with the central banks’s mid-year forecast of 3%, traders are pondering whether another rate increase is necessary. Friday’s job data could make or break the case for further tightening as the labour market’s resilience and wage growth are fundamentally a major sticking point in policymakers’ agenda. A soft reading could propel the US counterpart above 1.3400 with 1.3120 as a fresh support.

UKOIL struggles as China demand uncertain

Brent crude clawed back some losses as easing inflation offered a little respite. A slowdown in consumer prices across major economies has alleviated concerns of further interest rate hikes dampening economic growth. While resilient economic data could lead to more rate hikes down the road, they also suggest that the world is not on the brink of an outright recession, preventing a dramatic sell-off. Still, doubts about China’s industrial and manufacturing activities in the wake of a series of lacklustre data offset supply curbs by oil producers. The price is hanging by a thread over 70.00 and 80.00 is the first resistance.

US 500 rallies as recession fears ease

The S&P 500 edges higher as upbeat economic data help dissipate recession fears. Optimism is in the air across equity markets as investors believe that hard-line tightening is a thing of the past and central banks are at the fine-tuning stage, which means that terminal rates are within sight. Even though the US Fed might keep its monetary policy tight for longer, the market hopes that the economy is robust enough to withstand its impact. A worse-than-anticipated NFP could cause greater volatility as it may persuade policymakers to pause or even reverse course sooner. The index is heading towards 4500 and 4260 is a fresh support.

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