Written by Steven Dooley and Shier Lee Lim
NZD the standout ahead of RBNZ
Global markets remained mainly positive on Friday as US shares ended a stellar week in which all three key indexes reached new all-time highs.
In FX markets, the US dollar eased lower, with the USD index down 0.3% over the week.
The New Zealand dollar was the standout last week, up 1.0% over the five-day period, ahead of this Wednesday’s decision from the Reserve Bank of New Zealand.
The Aussie was quieter, up just 0.2%, with an important inflation result also due on Wednesday.
The British pound produced a stronger week – up 0.6% – despite some weaker data with expectations that UK interest rates will stay higher for longer boosted the currency.
The euro saw smaller gains last week while the Japanese yen fell. The Chinese yuan and Singapore dollar also only saw small gains.
US PCE the highlight
Looking forward, it’s a big week for US data, with consumer confidence on Tuesday night and December-quarter GDP due on Wednesday night.
However, it’s the US personal consumption and expenditure release that is likely to be the major event this week.
While we expect shorter-term run rates on inflation to continue to behave differently across the PCE and CPI price measures, we believe that overall inflation trends will continue to moderate over the course of the first half of 2024.
In contrast to 4Q23, core CPI run rates could decline dramatically in 1H24, however core PCE inflation is predicted to somewhat rise.
We think that a significant factor contributing to the “immaculate disinflation” seen in recent quarters has been the unwinding of supply chain shocks. These tailwinds, however, seem to be waning, which suggests that a weaker labor market would probably be necessary in order for inflation to sustainably stay near to goal.
Crude gains eyed as three-month high near
Commodities were lower on Friday as crude oil backed away from three-month highs.
Aside from the short-term dynamics, our Brent view is that the market is tightening, with prices rising by a further $10 by May due mostly to inventory decreases.
The decrease in inventory can be attributed to the following factors: (1) improving rather than cooling demand; and (2) decreasing OPEC+ crude exports. Most importantly, we see no geopolitical premium in our positive pricing view.
USD weakness drives Aussie, kiwi to highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 26 February – 2 March
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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