RBNZ hikes rates again

GBP

Sunak announces £15 billion package

Sterling has fallen lower against a lot of other G10 currency majors over the last week, gaining just over 1.0% against the US Dollar and 0.5% against the safe-haven Yen. The Pound has also slipped against the Euro, falling from its March highs, which could continue in the week ahead depending on data. Last week saw UK manufacturing and services data come in much softer than expected, showing activity dropping to its lowest since January 2021. However, a £15bn package was announced by UK Chancellor Rishi Sunak last week. This has provided support to both the Pound and the British public as cost-of-living pressures and recession fears continue to grow. The announcement came amid a busy week for Downing Street, as the release of Sue Gray’s full Partygate report made headlines. It’s a three-day week ahead for the UK, which celebrates the Queen’s Platinum Jubilee this weekend, but there will still be some data to look out for. Mortgage figures will be out on Tuesday, while Wednesday closes the week's releases with shop price data, Nationwide’s House Price Index, and manufacturing stats.

EUR

Lagarde's 'gradual' tightening narrative

The GBP/EUR exchange rate closed last week 0.31% lower, after falling as much as 1.36% in the week. Meanwhile, the Euro has staged a 2.30% recovery against the US Dollar over the last month, recovering from its multi-year lows. Last week, Eurogroup and EcoFin meetings were held and the EU looks set to take steps to protect its member countries’ gas supplies amid growing fears that Russia could cut them off. Meanwhile, the Euro Area saw some softer-than-expected readings in manufacturing and services. European Central Bank President Christine Lagarde, who spoke during the week, reiterated the need for a gradual tightening of monetary policy. Shortly after Lagarde commented that the ECB may exit negative rates by September 2022, the Euro index climbed up to 0.68%. Markets will be watching closely in her upcoming speech this Wednesday for any change in tone ahead of the central bank’s next monetary policy meetings in July and September. In the week ahead, the Euro Area will release its initial year-over-year Core Inflation Rate for May—which is expected to remain at 3.5%—alongside medium-tier services data and Retail Sales figures. Meanwhile, Germany will release readings for some key employment indicators.

USD

To hike, or not to hike?

The GBP/USD exchange rate marked its second consecutive week of gains last week, closing 1.19% higher and reaching four-week highs. US Dollar softness comes amid cautious commentary from the Federal Reserve regarding future interest rate hikes. Meeting minutes released last week showed that the projected 0.5% rate hike in September looks less certain as the Fed remains wary of slowing growth in the latter half of 2022. In the hours following the release of the minutes, the Buck fell as much as 0.21% on a trade-weighted basis. Last Friday’s US data pointed toward consumer resilience—with inflation-adjusted spending rising 0.7% for April—despite the highest inflation in 40 years. The week ahead will see some key ecostats released in the US, including Consumer Confidence readings and purchasing figures. Influential Non-Farm Payrolls data will also hit the US market at the week's close, as we observe bank holidays here in the UK.

AUD and NZD

RBNZ hikes rates again

Last week, the GBP/AUD exchange rate closed 0.37% softer, while the GBP/NZD currency pair closed 1.19% lower. Last Friday’s initial Australian Retail Sales data for March showed a fourth consecutive month of gains. However, the figure did note a slowdown in the pace of consumer spending, with a 0.9% reading for April compared to an increase of 1.6% in March. Meanwhile, GDP growth figures will be Australia’s main data release in the week ahead. It’s predicted that the country’s economy has grown 3.0% on the year in the first quarter of 2022—slightly slower than the 4.2% growth rate seen in the previous quarter. The release will come in the middle of a busy week for medium-tier Aussie data, with manufacturing and housing stats filling out the calendar.

New Zealand data started last week with a contraction in Retail Sales in Q1 of 2022, following a negatively revised reading of 8.3% in the previous quarter. Meanwhile, in Central bank news, the Reserve Bank of New Zealand also raised its official interest rate in line with forecasts to 2.0% from 1.5% last week. This is the second consecutive 0.5% rise from the central bank as it continues on an aggressive path of policy tightening to tame rampant inflation. RBNZ Chief Economist Paul Conway believes that New Zealand is ‘well-placed’ to get inflation under control without triggering negative growth, due to the economy's robust labour data. However, this could change depending on upcoming ecostats. This week's Export Prices release is expected to show a rise of 4.6% in Q1 2022, following a previous increase of 2.7%, reflecting increased costs caused by supply chain disruptions and the effects of the Russia-Ukraine war. It’s quieter for higher-tier data in the week ahead, with only the ANZ Business Confidence index being released.

CAD

Will the BoC hike in line with forecasts?

Last week, the GBP/CAD exchange rate closed 0.31% higher, reaching three-week highs. The lack of Canadian economic data over the last seven days opened the Canadian currency up to some movement as it softened against Sterling amid positive ecostats out in the UK. However, Canadian Retail Sales for March printed, with the release disappointing markets by coming in at a flat 0.0% on the month, despite expectations of a 1.4% reading. This week will bring more colour to the Canadian economy’s performance, with annualised GDP growth figures printing in Tuesday's North American session. The figure is forecast to come in at 5.4%, following a previous reading of 6.7%. Later in the week, ecostats for manufacturing and building permits will be released. Still, the Bank of Canada will be in focus, as it’s forecast to raise its benchmark interest rate from 1.0% to 1.5% in Thursday's monetary policy session.