Daily Commentary BY THE CURVE TEAM –

CPI Increases Hurdle for FOMC

14th of August, 2017

The ongoing war of words between North Korea and the US wasn’t enough to overshadow the data on Friday night, which will no doubt make the FOMC’s plans a little harder. Meanwhile in Australia, Governor Lowe appeared in front of the House Economics Committee and had some interesting things to say on the currency.

Friday night’s underwhelming data from the latest consumer price data just increases the hurdle for the FOMC’s next rate hike. While it is unlikely to derail the commencement of the balance sheet reduction, which should be announced next month, it throws into doubt the timing of the next rate hike. The market has lowered its expectations of a final rate hike in December to 20%, suggesting we are move likely to see the next year.

In Australia on Friday, Governor Lowe made his semi-annual appearance in front of parliament. His opening statement was in line with his recent rhetoric with wages and financial stability two key topics. As usual, the gems are usually found in the Q&A that follows and when asked about the currency Lowe didn’t shy away. He indicated that if warranted, intervention was a tool at the RBA’s disposal. However he didn’t see any need to urgently address the rally in the AUD at the moment.

It sets up a big week both domestically and offshore.

In Australia the highlights will be the latest wage data on Wednesday followed by the employment data on Thursday. The minutes from the August meeting will be out but we don’t expect anything substantial, given we have since received the quarterly Statement on Monetary Policy and Lowe has appeared in front of Parliament.

Offshore there will be plenty of inflation data for various major central banks to digest while the FOMC will release the minutes from their most recent meeting, which will demand a close look.

David Flanagan

Director - Interest Rate Markets